No quantifiable benefits in switching loans, says Kapil Wadhawan

We approach banking for onward lending activities, capital markets on consistent basis: Wadhawan

With a loan book outstanding of Rs 76,225 crore, mainly lending towards affordable housing with an average ticket size of Rs 17 lakh, DHFL is one of the leading names in the housing loan market. The company on Friday reported a 29 per cent rise in its net profit to Rs 260 crore. Kapil Wadhawan, chairman and managing director, DHFL, tells Nikhat Hetavkar that the push towards affordable housing and low interest rates mean this is the best time to buy a house, but loan-switching doesn’t help anyone. Edited excerpts:

The Pradhan Mantri Awas Yojana (PMAY) has brought in many new players. Do you see your dominance in the affordable housing finance space being threatened?  

The entry of new players is a very positive trend, at least on the back of the PMAY and the housing for all scheme. So is housing being accorded infrastructure status and put on the pivotal for overall economic development by the government. It is beneficial to the customer, with new entrants offering facilities. The market will only get expanded by this process, and it is already expanding.
 

But the underwriting standards could get compromised. 

This is something the regulators should be worried about. At our end, we are constantly tightening our belt at all times to make sure that we don’t go awry. There has been no relaxation in the underwriting norms and continue to be as strong as they were before. 

What is your take on the property market now?

Interest rates are low, property prices are stable, and people have money in their hands for consumption. We know the shortfalls but millions of houses are needed — without even factoring in the increasing population. The mortgage-to-GDP ratio is extremely low. You will continue to see consistent demand from the first-time home buyers, and there is a big secondary home market as well. This is the best time to buy a house. Interest rates are in single digits, and tax incentives are high. 

How are you managing your liability? 

On the fundraising side, we approach the banking side for our onward lending activities and capital markets on a consistent basis. We had two successful bond issues, which assisted us in bringing down our overall cost of money and pushing up our credibility in the system. At the end of the day, what is important is the cost of funds. We would rather go for the cheaper source of money. 

What are your growth expectations? Any plans to grow inorganically?

We are content with our organic growth. Our growth expectation for the first quarter on the disbursement side is 32 per cent and a moderate 20 per cent for the year. We expect the euphoria around affordable housing to assist us with our strong leadership position in the space.

Do you have plans to infuse capital to support further growth? 

In March, we divested our stake in the life insurance business and have tremendous windfall on the back of that. Our net worth, as on March 31, 2016, stood at about 5,000 crore and as on March 31, 2017 it was 8,000 crore, which was an increase of around 60 per cent. We don’t see a need of capital infusion for the next two years on the back of this diluted infusion. We are fairly comfortable with our capital adequacy and debt-equity ratio. 

How does your exposure in project loans compliment your housing loan? 

Project loans get converted into retail loans and then retail housing finance. Also, project loans command a premium on the interest side. This enables you to balance out your net interest margin.

What will be the impact of the Real Estate (Regulation and Development) Act (Rera )?

Rera is good for the buyer, developer and especially lenders like us. The amount of money allocated towards development, repayment of loans and developer is specified. Gone are the days when people could take on large projects and have the flexibility of using resources from one project to another. Rera will restrict developers to a specific project. The strong-willed ones will survive and the weaker ones will find different avenues.

Do you think non-banking finance companies (NBFCs) should be allowed to finance land? 

It may not be prudent. I know that land is usually 50 per cent of the total cost. Why should NBFCs be allowed to do land financing? There are many other market participants that allow for land financing like private equity as well as other forms of capital raising.

Does loan-switching hurt companies like you? 

Loan-switching has become an unfortunate phenomenon, and no additional housing stock is created in the process. People move from one institution to another for marginal benefit, leading to mirroring of one loan across the system. Housing finance companies should be allowed to make prepayment charges, as it was earlier. Now you don’t know the actual housing loan creation taking place. 

But these charges are considered customer unfriendly?

I would like to see the quantifiable benefit that the customer is getting by switching loans. The incentives of the sale agents and business teams are tied to the amount you can get disbursed. This rotation of loans breeds inefficiency in the system. 

Do you plan to raise money through masala bonds? 

We are evaluating into it. At an appropriate time, we will get into that space. What is important is, if you are able to raise money at a lower cost from the domestic market, then why should we possibly tap something that is costlier. In the domestic market we are raising money at sub-8 per cent for five years and 10 years.