Affordable Housing: Growth Driver for Banks and Housing Finance Companies

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Pavan K Gupta
Pavan K Gupta, Chief Executive Officer, Muthoot Housing Finance Company Ltd

In a bid to provide a home to every Indian by 2022, the Pradhan Mantri Awas Yojana (PMAY) housing for all scheme was launched by the Government in 2015. This has made affordable housing/ finance the most sought-after business, says Pavan K Gupta, Chief Executive Officer, Muthoot Housing Finance Company Ltd, in an interaction with Rakesh Roy of Elets News Network (ENN).

Affordable Housing is gaining a lot of significance. Would you like to share the reason behind it?

Today every discussion on housing starts and ends with affordable housing. In 2015, with a vision to provide a home to every Indian, the Government launched “Housing for All by 2022” scheme. This Centre’s initiative brought the focus of government authorities, builders, regulators and bank/Housing Finance Companies (HFCs) to affordable housing. About 95 percent of the housing shortage in India is in the low-income segment which comprises the EWS (Economically Weaker Section) having annual income up to Rs three lakhs and LIG (Low Income Group) having an annual income of Rs 3-6 lakhs. The housing for all primarily focuses on the EWS and LIG segments. This scheme also covers people having an annual income between Rs six lakhs to Rs 18 lakhs which fall under the Middle Income Group -1 (MIG) and MIG-2 scheme. Affordable housing is defined differently by different people. Some define it on the basis of the size of the loan or carpet area of house or affordability.

How has the Housing for All Mission/ PMAY helped in the growth of the affordable housing sector in India?

The government has the vision to provide housing to every Indian by 2022. Under the Pradhan Mantri Awas Yojana (PMAY), the Centre plans to provide 20 million houses in Urban Area and 30 million houses in the rural areas. In order to boost the demand and supply for affordable housing, Government has implemented various initiatives like providing infra status to affordable housing, reduction of the Goods and Services Tax (GST) from 12 percent to 8 percent for under construction properties under affordable housing, tax holiday to affordable housing developers for five years, allowing external commercial borrowing for affordable housing, Credit Linked Subsidy Scheme (CLSS) subsidy in urban areas and subsidy support for beneficiary lead construction.

Credit-linked subsidy is provided to economically weaker section (EWS), low in the group (LIG), and Middle Income Group (MIG-1 and MIG2) beneficiaries. Under this scheme, eligible urban households get subsidy up to a maximum of Rs 2.67 lakhs on home loans availed from Banks/ HFCs (Housing Finance Companies) etc. National Housing Bank (NHB) and the Housing and Urban Development Cooperation (HUDCO) are the central nodal agencies to implement the scheme.

National Housing Bank has issued around 35 new licenses in the last three years to start Housing Finance companies (HFCs). Most of these new HFCs are focusing on funding affordable housing customers in the informal sector. This has led to the easy availability of housing finance to the EWS/LIG segment of customers. All these above factors have led to spurt in the demand and supply of affordable housing.

What role does Muthoot Housing Finance Company Ltd (MHFL) play in providing housing finance to the masses, not addressed by the formal Banking sector?

 Muthoot Housing Finance Company Ltd extends housing loans to salaried and self-employed customers with formal and informal income. According to the Ministry of Housing, Urban Poverty Alleviation, the Economically Weaker Section (EWS) and Low Income Group (LIG) accounted for 95 percent of the total housing shortage in India. Out of the total working population in this category, 65 percent in the urban area and 90 percent in the rural area are engaged in unorganised or informal segment. These customers do not have a formal income proof and thus do not get home loan from the banks and large HFCs. MHFL is present in nine States and caters primarily to these underserved customers. To cater to the informal customers in the affordable housing segment, understanding of the customer business, evaluation of their income basis their cash flows and understanding of local property market is inevitable. At MHFL, we have been able to develop expertise to execute the above. We customise products as per their clients’ needs. We have developed a robust credit appraisal process. It is during personal discussion, the customer needs, income and his repayment capacity is evaluated on the basis of which home loan is given. Invariably all our customers are end users.

 How does technology boost the growth of affordable housing finance in India?

Technology has helped HFCs/ NonBanking Financial Companies (NBFC) to provide fast, efficient, cost-effective, customised product and services to customers. It helps in increasing the productivity of the manpower, better utilisation of resources and automation of many manual procedures. It has helped in reaching out to larger geographies for business acquisition without setting up brick and mortar set-up. Use of mobile and mobile technology has made onboarding of a customer easy, fast and cost-effective. Technology helps to manage risk through analytics. It helps in taking informed credit decisions. Collection and recovery process has become far more effective and efficient and significant scale-up of business across geographies at cost-effective manner is possible with the help of technology.

What are your future plans for business growth? How do you think the affordable housing sector will grow in the next few years?

Muthoot Housing Finance plans to have an asset under management of more than, Rs 3,000 crores by 2021. The affordable housing finance is likely to grow at 35-40 percent in the next few years. This growth is enabled because of Centre’s focus to ensure housing to all by 2022, rapid urbanisation, migration of people from rural to urban areas, development of 100 smart cities, nuclearisation of families and rapid income growth in the EWS/LIG segment.

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