Dewan Housing eyes banks' home loans portfolios

Dewan Housing Finance is in talks with banks to take over their home loan portfolios. This will help the housing finance company grow its balance sheet to Rs 5,000 crore by March 31, 2008.

"Banks have approached us to sell part of their (home loan) portfolio through one-to-one transactions," said Kapil Wadhawan, managing director, Dewan Housing.

He declined to name any bank, only adding that the housing finance company "is looking at inorganic opportunities in addition to organic growth by acquiring companies." Banks are trying to offload a part of their home loan book through one-to-one transactions as their spreads have dwindled.

"In the short term, as interest rates on floating home loans have risen, we expect a fall in issuances of securitised debt paper for home loans," said Sudhir N Variyar, director business development, Fitch.

Until floating interest rates get further corrected, ensuring a spread, banks will not issue fresh mortgage-backed securities (MBS).

Today, when MBS are sold at a yield of about 7.5 per cent, and floating rate loans are also offered at the same rate, there is no spread for banks, thereby making the issuance of MBS unprofitable, he explained.

Banks are thus opting for one-to-one transactions with housing finance companies, which, said a senior executive of a leading home loan company, "allows for greater flexibility as compared to the securitisation route."

Securitisation essentially converts cash flows associated with illiquid assets, in this case home loans, into marketable securities.

Dewan Housing, with its plans to grow its loan book by two and a half times, is keen to pick up banks' portfolio. By March 2005, Dewan Housing will have close to Rs 2,000 crore worth of assets under management.

"We have seen an incremental growth of 45 per cent in the first six months in terms of loan disbursements, and expect to end the year at Rs 700 crore," said Wadhawan.

In the first six months the company has disbursed loans amounting to Rs 309 crore, against its total disbursement figure of Rs 468 crore in financial year 2003-04.

Meanwhile Dewan Housing proposes to raise Rs 50 crore through a rights issue, which will help fund its future growth. "Post issue, out capital adequacy ratio will rise to Rs 20, from the prevailing Rs 16," added Wadhawan.