R R Nair is the new director and CEO of LIC Housing Finance, the second largest housing finance company. Having worked in Life Insurance Corporation and its overseas subsidiaries, financing is a completely new ball game. Nair spoke to Falaknaaz Syed about the company's plans.
You are one of the few lenders which have not raised lending rates after the latest monetary tightening by RBI. How are you managing?
It is a difficult time as one has to create a balance between the cost of funds and customer expectations. Customers want loans at affordable rates. In the current financial year, we increased the rates for existing customers by only 75 basis points, while the costs have risen by 300 basis points.
We are trying to introduce more operational efficiency in order to absorb the rising costs. We are focusing on bringing down the operating costs by 50 basis points through better productivity and control on expenses, which can be passed on to the customers. Around 50 per cent of our borrowings are long term in nature and these give us a buffer.
We have a pool of 1.1 million LIC agents, some of whom can be used for marketing instead of developing a separate network. There is a gap between demand and supply as 24 million dwelling units are needed. Demand will only increase, although affordability is a question. But the situation will improve as such high interest rates cannot sustain for long.
Are you lowering the growth targets?
No. In fact we are targeting 40 per cent growth in disbursals. Last year, we launched project loans and disbursed Rs 1,200 crore. Our target is to disburse at least Rs 2,000 crore this year. Retail business constitutes 94 per cent of our business. Our total disbursal last year was Rs 7,100 crore and we plan to grow by 40 per cent this year.
Are defaults on the rise?
The default rate was 4 per cent three years ago. It is now down to 1.7 per cent.
Is LIC Housing Finance looking at the venture capital business?
We intend to start a Rs 300 crore fund and are in the process of getting the Sebi's approval. LIC Housing Finance and LIC will hold a 51 per cent stake in the venture capital company and the remaining will be shared by other partners.
The venture capital business allows a direct share in the profits on a pro-rata basis, with higher returns. We plan to finance 50 projects within 18 months and a committee is being formed to cherry pick the best promoter projects.