In conversation with Kalpesh Dave, Head Corporate Planning & Strategy, Star Housing Finance Ltd
Star HFL plans to have smaller offices at these root-level centres that would be contributing to the overall growth, emphasizes Kalpesh Dave, Head Corporate Planning & Strategy, Star Housing Finance Ltd
What are your predictions for the Indian housing finance industry?
The next wave of growth in the Indian mortgage space, which has been growing at the rate of 16-18 per cent CAGR over the last decade, is expected to come from small-ticket housing finance companies focussed on first-time home buyers in semi-urban and rural geographies. One expects these niche HFCs to fill in the gap created by the absence of erstwhile bigger players. Small ticket HFCs have been clocking over 30 per cent CAGR in the affordable housing finance segment. One feels this momentum shall be sustained and even surpassed as the focus now shifts to rural geographies.
The demand for rural housing has seen favourable tailwinds, courtesy of infrastructure development, digitisation reaching these areas through smartphones, nuclearisation of rural families, and reverse migration of population during the COVID-19 pandemic. Many HFCs have turned rural to meet this incremental demand, given the relative saturation one experiences in urban agglomeration. The secured nature of such type of lending has given single-largest asset purchase byeconomically weaker section/low-income group (EWS/LIG)customers and resulting emotions attached to it, and at the same time, lowerloan-to-value (LTVs)of such loans (reasonably higher percentage of equity brought in by home borrowers). These are often new to credit customers and resultant risk is factored in the interest rateoffer.
This customer segment/target geography has stood the test of disruption due to the COVID-19 pandemic and recent acts of nature. The static pool emanating from this segment shows encouraging signs of regular repayments and relatively less propensity to default as against what was theorised by the market experts. More than 95 per cent of the housing shortage emanates from first-time home buyers from EWS/LIG segment aiming to purchase/construct their own homes in rural/semi-urban geographies. One feels that there is ample opportunity to create bigger institutions in rural focussed housing finance space and this should be a driver of the overall mortgage market over the next decade.
Star Housing Finance's earnings after tax for the first quarter of FY22 increased by a solid 474 per cent year-on-year. Can you shed some insight on the elements that resulted in this development in business operations and financial performance?
We see FY23 as the year of growth for Star HFL. The company has now evolved to a professionally run set-up and is ready to scale up across business parameters. Star HFL has invested in creating capacity through the establishment of physical/digital branches, on-boarding of quality manpower, deployment of a core lending suite, and generation of a strong funding pipeline. The policies, processes, and guidelines set up to enable this growth have enabled record quarterly disbursement for the company. FCU/Collection vertical has resulted in robust receivable management. Its net worth continues to get stronger as the company has continued to raise capital in the previous financial year. The liability programme has resulted in relationships with public sector banks andNational Housing Bank (NHB).Q1 demonstrated the coming together of all these parameters resulting in the generation of a strong top line and rationalisation of borrowing as well as operational cost. All business centres have contributed to business activities. Q1 has been the first quarter wherein our capacity has been completely utilised as compared to the other quarters in the COVID-19 pandemic. This has resulted in record numbers for the quarter.
What actions are you taking to develop your network and deepen your presence in tier III & tier IV cities?
Star HFL is present across operational rural and semi-urban geographies. By virtue of technology, the digital outreach penetrates deeper into the associated smaller towns and villages. The company has invested in the creation of capacity over the last four quarters resulting in the setting up of more than 10 physical branches and 20 digital points of presence. These locations are manned by HFC professionals across business functions. These professionals have the requisite to know how to ensure AUM scale up backed by quality. Star HFL looks forward to penetrating deeper at the district/taluka/village level that is identified as growth centres as per its in-house analysis & research.
Star HFL plans to have smaller offices at these root-level centres that would be contributing to the overall growth. Star HFL is focussed on providing rural housing finance solutions and is accordingly, planning to strengthen its presence in high-potential rural centres. The company looks forward to expanding its geographical presence in newer states in North & South as it scales up and aims to grow towards becoming a systemically important home finance company over the next 6-8 quarters.
What are the top three strategic objectives that you now possess?
- Star HFL aims to strengthen its net worth past Rs 100 crore, subject to all approvals in place. This shall enable achievement of business objectives viz re-rating, qualification on the quantum criteria for transitioning to NSE, and create a strong platform for enhancing leverage.
- Star HFL aims to scale up, backed by quality to Rs 500 crore AUM over the next 6-8 quarters as the first step in its growth journey. This will be aided by the expansion of presence across existing & new geographies, on-boarding of quality manpower, and continuous investment in technology.
- Star HFL aims to strengthen its business objectives through four different verticals dedicated to regular housing loans, digital lending, co-lending, and rural housing. Star HFL envisages 25-30 per cent of incremental loans over the next 18-24 months to come from digital and rural housing.