HOUSING FINANCE
 Legal Systems Needs to be Modified
Says D K Chakraborty, Regional Manager, LIC Housing Finance Limited

In your opinion has the scenario of Indian Housing Finance sector changed after liberalisation?
The shortage of housing in India persists since Independence. According to the planning Commission estimates the shortage of dwelling units are expected to reach 41 million by 31.03.2001. This resulted due to the growth of population, shift in demographic pattern and rising income of the middle class vis a vis the availability of housing stock. In order to rectify this mismatch between demand and supply the Government encouraged the housing finance institutions and Banks (Public and Private) for bridging the resource gap.
After liberalisation, the market is witnessing the influx of many players from the formal sector, banks and financial institutions into retail financing. The Government estimated a fund requirement of Rs.1,50,000/- crores for housing. The formal sector is expected to contribute around Rs. 52,000/- crores towards this amount. In order to grab the maximum share of the market there is tremendous competition among players to retain and create customers resulting in improvement in products, service, access and reduction in cost (i.e. interest rates) which goes to the benefit of buyers at large.

What is your opinion about the status of housing finance companies in India?
With the growing recognition of housing finance in a developing economy like India, the housing finance industry has assumed all the more significance and presently over 400 entities, including housing finance companies and banks- nationalised, foreign as well as cooperative-have entered the scene. Among the institutions, the names of LIC-HFL, HDFC, HUDCO can be taken as major players in terms of market share. Several other institutions also share the market either locally or at the national level. It is observed that a regional market is found to be dominated by certain institutions say, Sundaram Finance. The Banks have of late come up with housing activities in a big way and considering their customer base and wide coverage along with branch network, they are having a good potential in this field.

Do you suggest any measure to improve the status of housing finance companies in India?
Since the market situation, there is room for any number of players to remain active. But it is important for a player to fulfil its obligations to its clients both in terms of disbursements made at a comparatively lower cost and also the quality of service. The finance companies, which are approved by NHB and are taking NHB refinance can improve their position of funds though the securitisation route. Besides, though the service quality has improved overall there is need and scope for further improvement in this field.

What do you think are major problems of housing finance companies in our country?
The housing finance companies in the country is suffering mainly from the high cost of funds, even after reduction in rates of interest in the recent years the rate of interest for the long terms loans is 5-6% more than rates in USA.
The legal system of the country requires to be strengthened and also streamlined. Because, this is necessary from the documentation point of view as well as for remedial actions for foreclosure of the loans in case of default. The Apartment Ownership Act., Urban Land Ceiling, Co-operative Acts. etc. which directly or indirectly have a bearing on the housing sector, needs to be modified and some sort of uniformity may be introduced.

Which are the key areas on where housing finance companies should concentrate to improve more profitability?
The competition in the housing finance segment has brought down the rate of interest. The companies are working in lesser margin. Consequently, profitability will depend to a great extent on the volume of business as well as cost of funds. The companies which are in a position to address these two areas properly will improve profitability.

Being one of the largest players in the housing finance sector in the country, how do you rate the Company’s future prospects?
LIC-HFL, with its core competence in disbursing individual housing loans, with an average size of around Rs. 03.00 lacs. This segment continues 99 percent of housing loans disbursed and it has a tremendous growth potential. With the special features (discussed later) added with the wide network of 67 Offices all efforts at improving the quality of service and development of newer products the Company expects a bright future in the new millennium.

To take advantage of the liberalisation process, what are the plans for LIC-HFL you have in mind?
To cope up with its fund requirements for post liberalisation period, the Company has entered into an MOU for securitisation, which will increase the scope tremendously for financing housing loans.
During 2000-2001, LIC-HFL plans to sanction 60,000 loans and disburse 57000 loans.

How LIC-HFL is different from other housing finance companies?
LIC Housing Finance Ltd. is the only housing finance company, which caters housing loans with LICI insurance coverage as collateral security through which the borrower enjoys the security, a substantial savings along with a house/flat and tax concessions as received on the premium paid.
Apart from the above, the Processing and Administrative fees of 1.50% of the loan sanctioned is among the lowest in the industry.
Besides, the Company offers loan to pensioners. And the term of loan to NRIs and those required for repairs and renovations are more than that offered by other Companies.

Any comments on Government Policies?
The Government has recognised the role that housing can play in the revival of the national economy. A lot of concessions/relief have been announced in the last three budgets to give a boost to housing. This includes, among other things, tax concessions to builders and individuals for constructing houses and I T rebate on interest payment on funds borrowed for acquiring, constructing and repairing self-occupied property, removal of Urban Land Ceiling and to provide foreclosure against defaulting borrowers.
Now the Government should consider giving an infrastructure status to housing finance sector, so as to enable the Companies in this sector raise money through tax-free bonds. This would help the housing finance companies to further bring down the lending rates.