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Universal Fin Companies Will Soon Be The Norm

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BSCAL
Last Updated : Oct 03 1997 | 12:00 AM IST

Do you see a scenario of specialised finance companies turning into universal ones?

As we go forward, we notice that the sub-sectoral classification of financial companies is changing. Perhaps, five years down the line, we may not have diversification of finance companies into housing finance, insurance, leasing and hire purchase, and loan and investment companies.

Instead, we may have universal finance companies. However, the focus of a company may not change. HDFC, for instance, will continue to capitalise from its expertise in housing finance and the huge demand for its products.

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How does HDFC see itself in this changing scenario ?

As HDFC may move towards becoming a universal finance company, we may look at other areas such as urban infrastructure in which the private sector can play a role.

We are also looking at insurance. All the products we offer are likely to be linked to housing finance. HDFC Bank will continue to function separately as the skills required for banking are slightly different.

But to be an universal finance company, dont you need a strong distribution network ?

HDFC is further developing its distribution network keeping in sight the goal of being a universal finance company.

Wed like to see ourselves transformed into a distribution house offering housing finance, deposits, insurance products, and various other financial products. Our network may be used to sell our products as well as those of a third party.

We are using technology to link together the various offices. Within a year, all Mumbai offices will be linked to a central data bank. Communication is set to change the way we do business.

What is the status of the real estate mutual fund that HDFC had planned?

Our plans for a real estate mutual fund is facing problems from the ministry of finance (MoF). Government officials keep citing the example of Tokyo where the real estate market crashed on account of prices being over-leveraged. However, the situation is different in the Indian market.

Even though real estate finance is offered to the extent of 85 per cent, on an average, the Indian borrower borrows only up to 48 per cent of his requirements. For many years, the real estate market moved only one way, and price swings are being observed only now.

There is a difficulty in accepting what is common knowledge overseas. As real estate develops into an industry, swings will come along with it as is the case with any industry.

Which foreign markets are HDFC planning to venture into?

We have entered into a joint venture for setting up a housing finance company in Bangladesh which should open this month.

Of the total equity base of $5 million, 15 per cent is held by HDFC, 15 per cent by International Finance Corpor-ation, Washington and the rest by local partners.

More importantly, HDFC will provide technical assistance. A similar request had come in from Sri Lanka.

However, the government there has not taken any decision as the sector is not open to private participation in Sri Lanka till now. There have also been enquiries from Russia and China which we are considering.

Apart from the traditional route of raising resources, what other avenues are HDFC planning to tap in the future?

We had plans for raising rupee-denominated foreign currency loan in which the overseas lender would bear the exchange rate risk. We had met with Japanese insurance companies and banks and various structures were worked out.

With Japanese rates being very low, we were able to attract extremely fine rates. However, the permission from the MoF did not come through as they equated it to an external commercial borrowing which housing finance companies are not allowed to tap. However, we are still interested. Otherwise, Asian Development Bank has recently approved $100 million for 25 years.

Another alternative we have been interested in for some time is pure securitisation where the transfer of the loan as well as the risk is passed to the investor.

The main problem here is the absence of foreclosure norms on account of which the investor does not feel safe.

Also, there is no advanced debt market which means the investor is stuck with the paper.

Where do you see the rates in the realty markets going?

The rates in the real estate markets are likely to go down further as the supply continues to be very high with the development of new townships.

We are increasing our presence in secondary towns, and on the outskirts of cities to cater to the financing of these apartments.

We have just opened a service centre in Thane.

Similarly, for the Western Mumbai suburban area, we plan to open a centre in Borivili. Centres will also be opened in Aurangabad, Rajkot, Baruch and other towns.

Do you think that the mandatory capital base of Rs 5 crore for Hfis is adequate?

Housing finance companies will have to be well capitalised to face the new challenges. The present capital base of Rs 5 crore is not enough. The regulatory authorities must note the changes taking place and raise the size of the capital base to Rs 50 to Rs 100 crore.

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First Published: Oct 03 1997 | 12:00 AM IST

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