The Presidential speech on Monday addressed affordable housing for all within 75 years of India's independence as one of the top agendas, an issue which was also highlighted by the Narendra Modi led-BJP in its manifesto.
Speaking to CNBC-TV18, Milind Sarwate, member, Strategy-Management Centre, DHFL says it is a significant development for the housing finance industry and there are already huge opportunities available in this industry.
According to Sarwate, the 100 cities idea, proposed by President Pranab Mukherjee, will lead to atleast 1 lakh new household for ever city which will result into a minimum of 1 crore new households coming up.
As people move into new houses they would vacate their previous ones, so there is also a secondary demand and therefore, this is a very significant force multiplier for the industry, he elaborates.
"It will bring in new scale to the industry and we feel that at DHFL we are very well placed to tap this demand," Sarwate adds.
Below is the verbatim transcript of Milind Sarwate's interview with Reema Tendulkar and Nigel D'Souza on CNBC-TV18.
Reema: In the President's address, there was a lot of focus on housing, he made statements like housing for all. In 75 years of independence they will build 100 cities focused on specialised domains and this was also a part of the BJP manifesto. What can we expect and how much can things pick up on the ground; if you can quantify that in terms of FY15 revenue growth?
A: I would take the industry outlook first. I think this is a very significant development for the industry. The size of the housing finance industry today is about Rs 8 lakh crore and all the ratios of penetration and affordability are looking upwards and so, there is a huge opportunity already sitting in the housing finance industry.
If you look at 100 cities idea that has been floated, even if you assume a population of about five lakh per city and household ratio of five people per household, we are looking at 1 lakh new households for every city. That is about one crore new households coming up.
As people move into these houses they would also vacate their second ones, so there is also a secondary demand and therefore, this is a very significant force multiplier for the industry. It will bring in new scale to the industry and we feel that at DHFL we are very well placed to tap this demand.
Also, there are other groups of companies that are into specialised housing finance and other finance needs are also very well placed to tap this particular opportunity that is coming up.
Nigel: We saw the Reserve Bank of India (RBI) policy just a couple of weeks ago, is there a change in your cost of borrowing?
A: It would depend on how the environment pans out. Inflation is a big joker in the pack because of the monsoon situation. If things work out well, as a growing economy one would expect some level of inflation and some level of good real interest rates but the current scenario should change for better.
Reema: Have things changed on the ground; have you seen a pick up in enquiries and if you can compare it to a year ago, now enquiries are 20 percent higher? Is there a chance that the company might increase the average ticket size?
A: The company has always focused on low and middle income categories. This is not only a national priority but also an excellent business proposition because we are now elegantly placed to tap that opportunity. The ticket size which is currently around Rs 11-12 lakhs, I don't think we want to move it up significantly barring the inflation component in the loan amount.
We are currently running a book of around Rs 45,000 crore and our reach is very significant, more than 450 locations in the country and growing by another 100 in the near future. So, our objective is to go deep and wide rather than just increase the ticket size.
We have processes, we have the mindset to understand this category of consumer and we expect that as a bottom of pyramid opportunity this is the low and middle income category (LMI), the one which will boom because as India grows economically it is this sector which will show the maximum amount of growth. Being one of the very few companies specialised in this space, we are very well placed on this account.
Nigel: Tell us about your non-strategic assets and also what is your consolidation strategy going ahead?
A: If you look at the financial services vertical, I don't think we have any non-strategic assets because the group has been organised very clearly into financial services.
There are four of us who have joined the group management centre but more about that later because this discussion is not on that. But we feel there is a great opportunity at converting the strategic assets that we have into a very large scale financial conglomerate and that dream gets stronger day by day.
Reema: In FY14 your sanctions were at USD 224 billion while your disbursements stood at USD 165 billion. Where is it likely to be in FY15?
A: I think the ratio would move up but much will depend on the environment as regards actual conversion takes place. For the financial services industry and more particularly the housing finance industry the liability side management is critical especially as you scale up and in that region we are encouraged by the fact that the Reserve Bank of India and the government are looking at differentiated banking licences.
A specialised form of banking for mortgage finance is very critical and if we move into that space we will be able to multiply the opportunities available for housing for the country as a whole and for our company in particular.
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