‘LIC will give us the reach in our banking business’

LIC Housing Finance has managed to beat industry growth rates in loan disbursals. Now the housing finance company has banking ambitions. CEO and director RR Nair, discusses the synergies a banking licence could provide with Excerpts: You have managed to grow disbursals at a time when banks are yet to see growth in their home loan portfolio. When the situation was bad and interest rates rose 400 basis points (bps), we took a call not to pass on the higher rates entirely to customers . We passed on the burden of only 125 bps to borrowers. But when rates fell, we passed on the benefit to customers. We passed on close to 200 bps of lower rates to our customers . That is one reason why there was not much of a migration of our floating rate borrowers to other banks. When large banks came out with what is now called teaser rates, we offered 8.9% fixed for three years. But later when banks further reduced rates, we did not reduce rate, but instead we complemented it by better services. The effective payout through the entire period of the loan, I think, is very competitive for our customers. You have already indicated your interest in a banking licence if RBI allows NBFCs to convert themselves into a bank, what would be your ability to stand on your own? We have a 21-year track record for profit making and dividend payment. Our network comprises over 200 offices throughout the country and roughly around 10,000 marketing intermediaries . Since we are dealing with home loans, it gives us a better understanding of the market and knowledge about the customers. We have more than 5 lakh customers, which we can tap. Besides, our professionals are wellversed with the functioning of the financial markets and have good appraisal skills. Capital support from LIC is not much of an issue now. We have a net worth of over Rs 3,400 crore. But there could be good synergies with the association of our parent in other ways. LIC has over 3,000 offices across the country. Our advantage is that, LIC could be a facilitator in opening up of new branches in cities where it already has a presence. LIC itself has huge transactions worth over Rs 10 lakh crore. Some businesses may flow by taking over some transactions . To start with, it will help us with some volume. Moreover, there are LIC’s customers, which is a more important factor than capital support from it. Besides, for LIC too, there could be a comfort of conducting business with its own group arm and it could play an indirect role in the management as well. Reverse mortgage as a concept is still not taken off in India as many lenders are reluctant to push the schemes as returns are far too deferred, blocking resources over an unpredictable period. It’s a novel concept in India. But the problem here is that the Indian psyche is such that Indians want to pass on their assets to their surviving relatives. The other problem is that the actual income from reverse mortgage is on a deferred basis while the income tax is on accrual basis.