LIC Housing Finance Ltd is moving away from solely focusing on retail clients and is wooing corporates to garner its lost market share.
Expanding its distribution reach with a whole new sales team of 'home loan agents', LICHFL has tied up with 130 corporates including blue-chips such as Infosys Technologies, Wipro, Samtel and Tata Steel.
The newly appointed chief executive S C Jain said the housing finance company is offering corporate employees cheaper loans by 0.5 per cent, on-the-spot sanctions and not insisting on guarantors as equated monthly installments are deducted directly from the employees' monthly salary.
"Corporate clients offer good potential business, which works out cheaper in terms of servicing with a single cheque from the corporate, and a lower default ratio," Jain said.
Aside from expanding its target market, LICHFL has also multiplied its distribution channel. Earlier it was depending solely on LIC insurance agents to hawk its home-loan products side by side with the risk products.
Jain said, "Today, we are recruiting LIC agents as our home loan agents to sell our products for which they are entitled for a commission, provided they also ensure recovery". The commission will be staggered over a year, he added.
Further, LICHFL has also engaged the services of direct sales agents to hawk its products.
"We are expanding our customer reach from 103 centres, plus 100 camp offices, to 225-230 centres," Jain said.
LICHFL has faced a lot of aggression from new competitors in the housing finance industry, especially from banks, which have access to cheaper funds.
Jain said banks have aggressively pushed refinancing of old loans by offering cheaper rates and have also triggered price wars in the industry.
This has forced housing finance companies such as LICHFL to ensure accessibility to cheaper funds. LICHFL has borrowed funds to the extent of Rs 3,400 crore (Rs 34 billion) from its parent, the Life Insurance Corporation of India since 1989.
LIC holds 38 per cent stake in LICHFL. With its ability to access cheaper funds from the market, LICHFL has not gone to LIC in the last two years.
Meanwhile, it has negotiated with its parent to bring down the interest rates on existing borrowings.
LIC reduced the interest rate on term loans by 240 basis points in December 2002, bringing it down to 9 per cent, Jain said.
"The cost of funds from LIC is still on the higher side, and we are expecting further reduction in the interest rate," he added. The housing finance major is able to get funds at about 8.5 per cent from banks.
