At a time when the real estate market is facing big concern on the delivery front and customers are agitating to an extent that they are threatening not to pay their equated-monthly instalments (EMIs), Srinath Sridharan, member, group management council, Wadhawan Global Capital (WGC), told The Indian Express that such an action might see those customers getting blacklisted by banks and housing finance companies (HFCs), thereby impacting their financial credibility. With a strong presence in the low-ticket housing category through its flagship company DHFL, WGC is well-positioned to benefit from the government’s affordable housing push as the segment is witnessing fast growth rate of around 35 per cent, he said. Edited excerpts:
In the National Capital Region (NCR), customers of certain developers who have not received delivery of their flats are agitating and are even threatening to stop paying EMIs. What would you suggest?
The way I see it is that the HFC or bank does not lend only on the basis of asset value and the lending is on the basis of serviceability of EMI and income of the customer. Even when a customer borrows money, they take a conscious credit call and it’s a two-party agreement. The HFC also releases money based on slabs. It is a financial instrument and one borrows in personal capacity. Today, if you default, the bank or HFC does not even have anything to possess because the project is incomplete. The issue is that if they (customers) stop paying, they will be blacklisted by HFCs and banks in CIBIL and their financial credibility will be at a loss.
While you are present in the low-ticket housing market in a big way, is the growth on ground in line with the government’s push for the ‘Housing for All by 2022’?
On a macro front, we are satisfied, because it is for the first time in India that a government has spoken about affordable housing and has been consciously pushing it. At the micro level, I think there are few things that need to be looked into. Firstly, land is a state subject and you can do a lot of things federally but the states also have to engage and then one has to look at the developer’s mindset also. It is far easier for large developers to work in the current space but not necessarily in the affordable housing space. If each of the state governments start working on affordable housing projects, I think sky is the limit. While the penetration of mortgage to GDP (gross domestic product) in India is in single digits, that in markets such as the UK, the US and China are between 50-80 per cent.
What about providing loans to such customers?
I have the ability to serve a customer for a loan requirement of Rs 5-10 lakh. While it is fashionable to serve Rs 50 lakh loan or Rs 1 crore loan in a city, it requires some ability to serve the affordable housing customer in Tier-II and Tier-III cities.
Do you see developers getting into it?
Three things happened in the past few months — demonetisation, RERA and GST. Everyone is assessing and coming out of the short-term impact of the same. When you make a structural reform in the country, it takes some time. Entering into affordable housing means creating new value proposition in brand by itself. Any of the exiting developer is not going to sacrifice his brand in affordable housing, he has to create a new brand or a sub-brand.
However, we will see a lot of first-generation entrepreneurs enter this space and they will make a difference.
How big is the opportunity?
There is opportunity across almost 300 cities in India for affordable housing but the activity as of now is not commensurate with the push and opportunity available. We are seeing active engagement of small developers who are making 10-20 or 50 unit projects in smaller ticket size through their small entities. And, we are giving loans in these segments. It is not about going to 10 large projects but about the ability to go to 1,000 small players building anywhere between 4 unit apartment to 80 units. As a group, we have grown by serving this kind of scattered retail demand. This means that new-age developers who come in with a set of supply, I would be more than happy because my growth will increase much more quickly.
How has growth been across various segments of housing loans?
The highest growth is recorded in the Tier-II and Tier-III markets in the price range between Rs 2 lakh and 25 lakh and it stands at 35 per cent. The segment between Rs 25 lakh and Rs 50 lakh on the outskirts of cities is witnessing growth rate of 25 per cent and the urban housing above Rs 50 lakh is witnessing a growth of 10-12 per cent.
The other business that WGC is present and which is witnessing high growth is mutual fund. How do you see it grow?
Fifteen years ago, mutual funds were untouchables and only people who really understood it got into it. However, it is now growing at a good pace and retail money is coming through SIPs (systematic investment plans). When maturity sets in the market, it develops as an asset class. The issue is that people are generally so inquisitive about news and keep looking for news but they don’t show even one 100th of that interest in their personal finance.
We are bullish on the mutual fund business. This is business that will take some time to build. Investment business is a trust based business where you will have to deliver consistently to gain trust. The growth has to be sustainable. While the industry is witnessing very sharp inflow of funds, where is the asset class to invest. You need quality assets to invest in. So much money is entering the mutual funds every month, where are they getting invested. The money is going into the same set of companies.
Do you plan inorganic growth across group companies?
For each of our businesses, I have to be significant in scale and size and I have to be relevant to my stakeholders. In India, size does matter. We are always looking for organic and inorganic growth across our businesses. We evaluate such opportunities on the basis of the potential of the business.
We are in the consumer business and serve the financial needs across lending, investment and protection. The ability to use our distribution reach across the country and ability to serve low- and middle-income customer has benefitted us. Today, it’s very fashionable to say that we will go bottom of the pyramid, but we have been serving them for the past 30 years and that is benefitting us.