Mumbai: He wears two hats—of a regulator as well as a commercial banker.
As chairman and managing director of National Housing Bank (NHB), the regulator of housing finance companies (HFCs), S. Sridhar’s focus has been on low-cost housing while as Central Bank of India chief, he wants his bank to be among the top five by 2011 in profitability and services.
Sridhar said in an interview that NHB has approached the World Bank for a $500 million (Rs2,400 crore) soft loan to promote housing for people with low incomes. NHB is also in talks with KfW, the Frankfurt-based German government-owned development bank, to promote energy-efficient houses and is close to setting up a professional body for property valuation on the line of the Institute of Chartered Accountants of India (Icai). Edited excerpts:
Aiming high: Chairman and managing director of Central Bank of India, S. Sridhar, who also heads National Housing Bank, says Central Bank doesn’t want to focus on balance sheet growth but profitability and customer satisfaction. Ashesh Shah / Mint
You have been a regulator as well as a banker. How has been the experience?
The experience has been very educating because of the economic slowdown. When there was a liquidity crunch, HFCs were in trouble because they rely on short-term money market instruments. After October (2008), NHB organized a special refinance facility of Rs4,000 crore to provide assistance to these companies and make sure that they don’t default and keep up their lending.
Similarly, we set up the rural housing fund for HFCs and regional rural banks to be lent to the weaker sections of society. Earlier, HFCs largely restricted themselves to urban areas. We gave them seven-year loans at 6-7% to lend to rural areas.
I am happy to say that the rural housing portfolio of many HFCs has gone up significantly.
We believe you are working on measures to evaluate property prices.
For the first time we are developing a valuation standard for properties, which can be used by everybody, including the commercial banks.
NHB and Indian Banks’ Association (IBA, the premier bankers’ body) are jointly doing the study in many cities.
We are meeting the valuers and drawing up the codifications as well as studying the best practices from the institutional lenders of others countries. In fact, very shortly we will develop a document on valuation standards whereby we will lay down the standards for valuers, and IBA will empanel the valuers.
Only those valuers who follow those guidelines will be allowed to value properties.
We are also encouraging setting up of a professional body of valuers like that of chartered accountants. If any of the members will be found to do professional wrongdoings, they will be penalized.
Will it be modelled on Icai?
Yes, something on that line… Unfortunately, the valuation industry in India is fragmented and unlike Icai, they don’t have a professional body. NHB and IBA are making efforts to set up a professional body.
We are also setting up an electronic database, a mortgage depository of frauds along with (credit history agency) Cibil (Credit Information Bureau (India) Ltd) and IBA.
A large section of the fraud in the mortgage areas happen because the same property is mortgaged many times. We are trying to maintain an electronic database of properties and increase the fields and details during disbursal of loans to stop that. We have recommended to the finance ministry that a special purpose vehicle be floated to do this work as an agent of the finance ministry.
You are also focusing on energy-efficient houses.
We are now doing a study on that in coordination with Kfw, Germany. Based on the study, we will put up a fund to finance HFCs and banks, hopefully at a concessional rate, if a builder builds energy-efficient buildings.
Where will the funds come from?
We approached KFW a few months back. We are about to start the study now. Depending on the findings of the study, we will chalk out a financing programme.
You launched the NHB Residex, India’s first housing price index, in July 2007 to fill in the price information gap and streamline property development. Have you been able to cover all major cities?
By next year we will expand it to 63 cities with more than 10 lakh population, from 15 now. The main problem is collection of data. They are being collected from real estate agents, brokers, housing societies and developers and we are cross-checking those with independent data sets.
Will the developers price houses according to your valuation norm?
No, they won’t. They will do whatever they want. But when you have a set of data and a proper idea of the value of properties in a certain area, there will be some pressures on these developers not to have too much of diversion. More and more real estate mutual funds will come to the market and the capital flow to the segment will increase. These types of housing price indexes are a must for valuation. The buyers will benefit too.
What is your take on low-cost housing? Will it take off?
I think so. Not low-cost housing, but housing for the lower income groups. Bulk of the demand will come in volumes and not in value. The model will not be that risky.
A house for a poor man is big. He will never default. There could be temporary funding mismatches for them... So there must be a mechanism through which they must learn how to manage their cash flow. NHB has pioneered financing microfinance housing in India.
Will there be any change in the financial model to refinance these companies?
We are in touch with many international agencies that are also interested in this field… UN- Habitat, World Bank, etc. We are trying to work with the World Bank for some low-cost funds for financing low-income housing. Three months back we gave them a proposal for a $500 million financing and this is under consideration.
Will it be a soft loan?
We have told the bank that we are not interested in getting finance at a commercial rate. We can get that ourselves. They should give us at least a portion of the funds under international development agency (IDA) rate.
What is that rate?
Zero per cent (laughs). And half a per cent charge to that. But those funds are limited. They cannot give the entire fund at that rate.
They can give $150-200 million in that rate. We will pass on that benefit to the banks for refinancing low-income housing.
How much have you refinanced this year?
In 2008-2009 July to June, we have disbursed Rs10,900 crore against Rs9,036 last year. We can refinance more than Rs11,000 crore now. But there should be a demand for that.
How much money do you want to raise from markets?
We should be raising about Rs8,000 crore this year through bonds and lines of credit from banks.
We are open to all kinds of instruments provided interest rates are low.
Finally, what are your plans for Central Bank?
I will not let my guard down on the provisioning part and will continue providing more for my debts.
Our loan loss coverage ratio is 72%, one of the highest in the industry.
We don’t want to focus on balance sheet growth but profitability and customer satisfaction will be our main focus area.
Our last quarter profit has been much higher than the year-ago quarter.
Any plan to infuse fresh capital?
We have asked the government for Rs700 crore.