Housing Finance: Metamorphosizing

The advancement of the Indian Housing Finance sector is largely a saga of three
institutions: HDFC, ICICI, and State Bank of India. All three either introduced or aggressively pushed concepts that turned the market upside down. Examples of this are: Floating rates introduced by HDFC and ICICI and fixed cum floating rates introduced by SBI. This segment has seen a 360-degreechange from almost four decades ago. Home Loans were never a brilliant option for home buyers, while today it has emerged as a robust borrowing and lending market.

Housing Finance in India
Despite it being a robust market, Housing Finance is still at a very nascent stage. Mortgage to GDP ratio is only 2%, whereas in advanced countries it is up to 51%, so there is ample scope for growth in this sector. The Centre’s announcement of ‘housing for all’ and the anticipated housing shortage of 25 million by 2021 are some of the key contributors that will push the growth of housing and of Housing Finance companies in India.

A Golden Era
With the fundamental building blocks in place and the road paved ahead for stronger growth, HFCs focused on segments such as affordable and LMI to name a few; along with a strong heritage and a differentiated business model, are well placed to tap into this potentially significant market to create a legacy of transformational change in India’s Housing sector. It would be interesting to note that Housing Finance companies are attracting high Private Equity interest. Important factors for the same are the low delinquencies. Secondly, mortgage finance has been growing at 25%-30% annually. Lastly, the number of players in the market has increased. There are 80 active HFCs and the NHB has received requests of licenses from another 80 applicants. In the recent past, Bessemer Venture Partners, Tata Capital Growth Fund, and True North invested in Home First Finance Company. Carlyle made a 22x return on PNB Housing investment. Kedaara Capital and Partners Group have acquired the Housing Finance business of Au Financier. Multiples Alternate Assets Management is setting up a greenfield Housing Finance platform.

The Game Changer
Evolving industry, increasing number of players due to limited entry barriers and limited customer pool will add to the already existing fierce competition. Thus, having an innovative business model, leveraging technology and analytics can become a game changer. In order to stay differentiated there will be a constant need to innovate both the business model and the quality of talent.
Talent on Demand We expect a huge demand for talent with experience across technologies like analytics, artificial intelligence, and robotics in order
to drive better and cost-efficient market penetration. Moreover, we have already started seeing an increasing demand for professionals with high quality operations, technology, and risk and analytics experience. A professional’s capability to double-up and wear multiple ‘hats’ is also highly sought-after.
Retaining existing employees in a highly competitive market will become equally
important. To retain top talent, organizations will need to devise a robust appraisal policy to reward deserving employees through salary increments, employee stock options, wealth creation mechanisms etc.