Growth Amid Slowdown - With prepayment penalty on floating rate home loans gone, can the business become competitive?
Yes, to some extent it'll. the fundamental competitive edge within the market is that the interest rate, however that's not the sole one. The perception that, by removing the penalty or by bringing the interest rates within the market to constant level, the market can expand or customers are going to be benefited, is simply partly correct. It results in a brand new quite phenomenon known as substitutional finance (rather than adding new customers, lenders concentrate additional on poaching existing borrowers of alternative lenders). Overall, the expansion and penetration of the business doesn't increase. Removal of prepayment penalty can facilitate those paying terribly high interest rates with none choice to shift to a brand new lender. In our case, we have a tendency to were the primary establishment to supply no penalty for up to ten per cent prepayment. And for borrowers with policies, no matter be the maturity proceeds—get adjusted against the loan while not prepayment penalty.
Typically, new borrowers make a come back rate of interests than existing ones. can removal of prepayment penalty force lenders to supply uniform rates to all?
This uniformity is subject to time and economic conditions. Today, if the value of funds for the lender is ten per cent, then the lending rate are going to be beyond ten per cent. an individual who borrowed when the value of funds was seven per cent pays but the present interest rate. At this stage, we have a tendency to are borrowing at nine.5 per cent, therefore we'll be lending at 10-11 per cent. therefore during this area of your time, for these teams of housing loan, borrowers have completely different rates of interest. There may not be equality, however there definitely is equity, because, additional or less, all the players have currently converted to prime lending rates (PLR). we have a tendency to calculate it with borrowing, administrative and alternative expenses—based on that the ultimate PLR is given.
Rather than tweaking the PLR, lenders increase the discount for brand spanking new borrowers whereas existing borrowers keep paying at lower discounts. except for floating rate loans, after you will readjust the lending rate, cannot or not it's in deep trouble all borrowers, simultaneously?
You will be shocked to grasp that each year for this asset liability matching, there's a transparent specific guideline from the regulator. we have a tendency to cannot manipulate things on our own. we have a tendency to cannot take a short-term loan and then distribute it for the future. once a year you have got to form a separate basket. If this year we've given the loan at twelve.5 per cent it should be as a result of the borrowing price is ten per cent and it's reviewed quarterly. No monetary establishment is prepared to commit their funds for quite 5 years. therefore we have a tendency to take this risk (asset liability mismatch) and since there's volume, we have a tendency to are fine with it. But, by and enormous, the complete focus is to bring the floating rate interest to a level where it's linked in an exceedingly clear manner to interest rate movement.
Is the y-o-y fallof nineteen.4 per cent in your this fall profit a signal of slowing home loan market?
If you see last year's this fall profit, Rs a hundred and sixty crore, we have a tendency to had one purpose profit on sale of our mutual fund assets. If you take away that, our operating profit growth this year is eight per cent, despite the high-cost regime and also the proven fact that we have a tendency to had not increased the PLR on the last increase of rate by RBI. This has squeezed a number of our margin. The second reason is that we've been terribly selective on the developers front. however the demand for loans has not come back down. Our loan growth is quite twenty per cent, our overall portfolio growth conjointly has been twenty three per cent and twenty eight per cent in retail. It (fall in profit) can't be interpreted that it's as a result of the slowdown within the market or slowdown of the company's growth.
With marginal slowdown stirred by recession and Reserve Bank of India rate cuts, can borrowers return?
In March, RBI failed to increase the policy rate however solely the cash-reserve ratio (CRR), that itself gave an honest feeling. With this recent rate cut, the activity in housing loan sector has increased. Our current year growth rate is best than that of last year. The initial feel smart issue is simply one in all the factors, it should even be as a result of the segment—25-35 years—where demand is extremely high. Another issue is that the acute shortage of quality housing in tier-II andtier-III cities. With high demand, despite slowdown, costs of residential units in these cities are increasing.
After the economic slowdown several lenders became weary of lending to land. What has created you lend once more, once the lending freeze?
We have been lending to the $64000 estate sector and it's a section of the general development of the arena. If the property development does not occur then the stress can't be fulfilled and there'll be a synthetic shortage and a resultant worth hike. there's an honest depth within the land section and that we are careful as a result of the economic turmoil. Through our recent association with the arena, we have a tendency to are assured that there'll be no risk of going wrong.
Do you suppose there's overheating within the property market? does one foresee any correction within the property costs within the cheap segment?
Overheating of property market is simply in Mumbai. In Delhi NCR, within the last four years, there has hardly been 10-15 per cent worth increase. the fundamental drawback lies within the investor section. They book the property and then look to sell it at a profit. currently they're held up. however the top user demand remains there as there's shortage of roughly twenty five million housing units (countrywide).
What has been the expansion of retirement housing in India and what is going to its future be?
In India, the concept of care or retirement homes is new. we have a tendency to came into this section through our care home subsidiary 10-12 years back. Our initial project was in Bangalore, the second project in Bhubaneswar are going to be completed by 2013. we have a tendency to are developing with another project in Bangalore that is totally sold out. excluding ours, there are only a few organised efforts for retirement homes. it's not an finish to finish answer.
What has been the response to your flexi product (fixed-cum-floating) where interest was mounted for initial few years and then converted to floating? Why does one suggest it?
It has been a superhit product. RBI failed to cut the interest rate for sure. and folks needed a cushion if rates went up and that we gave them that. For the primary 3 years, albeit the speed is high, folks need stability.
Are the Indian shoppers are prepared for reverse mortgage? What are your plans for this product?
In course of your time it'll develop. However, psychologically there's resistance. this can be a physical asset. And even in case of annuity, only a few folks take life annuity as most customers insist that if they die the corpus ought to come. it'll amendment with the increase in nuclear families. This product is on our agenda, however at a really preliminary stage.
Yes, to some extent it'll. the fundamental competitive edge within the market is that the interest rate, however that's not the sole one. The perception that, by removing the penalty or by bringing the interest rates within the market to constant level, the market can expand or customers are going to be benefited, is simply partly correct. It results in a brand new quite phenomenon known as substitutional finance (rather than adding new customers, lenders concentrate additional on poaching existing borrowers of alternative lenders). Overall, the expansion and penetration of the business doesn't increase. Removal of prepayment penalty can facilitate those paying terribly high interest rates with none choice to shift to a brand new lender. In our case, we have a tendency to were the primary establishment to supply no penalty for up to ten per cent prepayment. And for borrowers with policies, no matter be the maturity proceeds—get adjusted against the loan while not prepayment penalty.
Typically, new borrowers make a come back rate of interests than existing ones. can removal of prepayment penalty force lenders to supply uniform rates to all?
This uniformity is subject to time and economic conditions. Today, if the value of funds for the lender is ten per cent, then the lending rate are going to be beyond ten per cent. an individual who borrowed when the value of funds was seven per cent pays but the present interest rate. At this stage, we have a tendency to are borrowing at nine.5 per cent, therefore we'll be lending at 10-11 per cent. therefore during this area of your time, for these teams of housing loan, borrowers have completely different rates of interest. There may not be equality, however there definitely is equity, because, additional or less, all the players have currently converted to prime lending rates (PLR). we have a tendency to calculate it with borrowing, administrative and alternative expenses—based on that the ultimate PLR is given.
Rather than tweaking the PLR, lenders increase the discount for brand spanking new borrowers whereas existing borrowers keep paying at lower discounts. except for floating rate loans, after you will readjust the lending rate, cannot or not it's in deep trouble all borrowers, simultaneously?
You will be shocked to grasp that each year for this asset liability matching, there's a transparent specific guideline from the regulator. we have a tendency to cannot manipulate things on our own. we have a tendency to cannot take a short-term loan and then distribute it for the future. once a year you have got to form a separate basket. If this year we've given the loan at twelve.5 per cent it should be as a result of the borrowing price is ten per cent and it's reviewed quarterly. No monetary establishment is prepared to commit their funds for quite 5 years. therefore we have a tendency to take this risk (asset liability mismatch) and since there's volume, we have a tendency to are fine with it. But, by and enormous, the complete focus is to bring the floating rate interest to a level where it's linked in an exceedingly clear manner to interest rate movement.
Is the y-o-y fallof nineteen.4 per cent in your this fall profit a signal of slowing home loan market?
If you see last year's this fall profit, Rs a hundred and sixty crore, we have a tendency to had one purpose profit on sale of our mutual fund assets. If you take away that, our operating profit growth this year is eight per cent, despite the high-cost regime and also the proven fact that we have a tendency to had not increased the PLR on the last increase of rate by RBI. This has squeezed a number of our margin. The second reason is that we've been terribly selective on the developers front. however the demand for loans has not come back down. Our loan growth is quite twenty per cent, our overall portfolio growth conjointly has been twenty three per cent and twenty eight per cent in retail. It (fall in profit) can't be interpreted that it's as a result of the slowdown within the market or slowdown of the company's growth.
With marginal slowdown stirred by recession and Reserve Bank of India rate cuts, can borrowers return?
In March, RBI failed to increase the policy rate however solely the cash-reserve ratio (CRR), that itself gave an honest feeling. With this recent rate cut, the activity in housing loan sector has increased. Our current year growth rate is best than that of last year. The initial feel smart issue is simply one in all the factors, it should even be as a result of the segment—25-35 years—where demand is extremely high. Another issue is that the acute shortage of quality housing in tier-II andtier-III cities. With high demand, despite slowdown, costs of residential units in these cities are increasing.
After the economic slowdown several lenders became weary of lending to land. What has created you lend once more, once the lending freeze?
We have been lending to the $64000 estate sector and it's a section of the general development of the arena. If the property development does not occur then the stress can't be fulfilled and there'll be a synthetic shortage and a resultant worth hike. there's an honest depth within the land section and that we are careful as a result of the economic turmoil. Through our recent association with the arena, we have a tendency to are assured that there'll be no risk of going wrong.
Do you suppose there's overheating within the property market? does one foresee any correction within the property costs within the cheap segment?
Overheating of property market is simply in Mumbai. In Delhi NCR, within the last four years, there has hardly been 10-15 per cent worth increase. the fundamental drawback lies within the investor section. They book the property and then look to sell it at a profit. currently they're held up. however the top user demand remains there as there's shortage of roughly twenty five million housing units (countrywide).
What has been the expansion of retirement housing in India and what is going to its future be?
In India, the concept of care or retirement homes is new. we have a tendency to came into this section through our care home subsidiary 10-12 years back. Our initial project was in Bangalore, the second project in Bhubaneswar are going to be completed by 2013. we have a tendency to are developing with another project in Bangalore that is totally sold out. excluding ours, there are only a few organised efforts for retirement homes. it's not an finish to finish answer.
What has been the response to your flexi product (fixed-cum-floating) where interest was mounted for initial few years and then converted to floating? Why does one suggest it?
It has been a superhit product. RBI failed to cut the interest rate for sure. and folks needed a cushion if rates went up and that we gave them that. For the primary 3 years, albeit the speed is high, folks need stability.
Are the Indian shoppers are prepared for reverse mortgage? What are your plans for this product?
In course of your time it'll develop. However, psychologically there's resistance. this can be a physical asset. And even in case of annuity, only a few folks take life annuity as most customers insist that if they die the corpus ought to come. it'll amendment with the increase in nuclear families. This product is on our agenda, however at a really preliminary stage.
Growth Amid Slowdown
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