LIC Housing Finance Company is one of the biggest Housing Finance mortgage Companies in India having its registered Office in Mumbai.
(A) About LIC Housing Finance
- The Company incorporated on June 19, 1989 and is a Subsidiary Company of LIC, the largest public sector insurer.
- LIC HFL provides long term finance to individuals for the Purchase or Construction of house/flat for residential purposes in India.
- It also provides Finance on existing Property for Business and personal needs and also gives loans to Professionals for purchase/construction of their Offices.
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- Key Board Members
- LIC Housing Shareholding Pattern
- FY21 Loan Book classification & Growth
- Year on year loan disbursements
- LIC Housing Finance Borrowing mix analysis
- Interest income & expenses parameters
- Distribution Network
- Key operational parameters
- Financial performance highlights & 3 Key performance metrics of LIC Housing Finance
- Important inputs of LIC Housing Finance from management discussion
- Growth Opportunities & Risks/Concerns
(B) Journey Since Inception
(C) Executive Board Members of LIC Housing
(i) Mr. M. R. Kumar (Chairman)
Shri M.R. Kumar, took charge as Chairman LIC of India on 14th March, 2019. He joined LIC of India in 1983 as a Direct Recruit Officer. In a career spanning more than three and a half decades, he has the unique privilege of heading three Zones of LIC of India, viz, Southern Zone, North Central Zone and Northern Zone, headquartered at Chennai, Kanpur and Delhi respectively. He was also Regional Manager (Marketing) and Regional Manager (P&IR) at Kolkata and Chennai.
As an Executive Director, he headed the Personnel Department as well as the Pension and Group Insurance vertical of the Corporation. During his tenure, several initiatives were rolled out for the benefit of the employees.
His rich experience working pan-India, right from North to South and East to West including the heartland states of India while heading Kanpur Zone, has given him a deep insight into the demographics and insurance potential of the country. Moreover, working in different streams of life insurance management has given him the twin advantages of enriched knowledge and clarity on processes and procedures in the Life Insurance Industry.
(ii) Mr. Y Viswanatha Gowd (Managing Director and CEO)
Mr. Y. Viswanatha Gowd has assumed charge as Chief Executive Officer of LIC Housing Finance Limited with effect from 1st February 2021. He joined LIC of India as a direct recruit officer in 1988 and has risen through the ranks to this senior position. Prior to taking over as CEO of LIC Housing Finance, Mr. Gowd was appointed as Chief Operating Officer (COO) of LICHFL.
He also served as Regional Manager of LIC HFL’s South Eastern Region since 2017. Under his leadership South Eastern Region was the top performing Region of the Company and the loan book of the Region grew by 63%.
In a career spanning over three decades in LIC of India, Shri. Gowd has made his mark in the areas of Marketing, Finance, and Pension & Group schemes. He also holds the privilege of heading two divisions of LIC of India - Udipi and Dharwad as Senior Divisional Manager.
(iii) Mr. Vipin Anand (Non Executive Director & MD of LIC)
Vipin Anand assumed charge as Managing Director of LIC of India on 1 April, 2019. Prior to his appointment as Managing Director, he held the positions of Zonal Manager-In-Charge of LIC’s Western Zone, Mumbai and East Central Zone, Patna. Earlier, as Executive Director In-charge, he has been corporate head of LIC’s Direct Marketing, Corporate Communication and International Operations.
Mr. Anand joined the Life Insurance Corporation as Direct Recruit Officer of 12th Batch in 1983. During his service of more than 35 years with LIC, Shri Anand has handled with great success several important assignments in various capacities and departments, in operations as well as at the corporate level, ranging from Information Technology, Marketing and Personnel & Industrial Relations to Corporate Communications and International Operations, across different geographical locations of the country.
He was also a member of the IRDAI committee for framing Regulations on Digital Marketing and was a member of the CII Committee on Insurance and Pensions.
(D) Shareholding Pattern
(E) Loan Book of LIC Housing Finance
LIC Housing Finance Limited provides loans for Homes, Construction Activities and Corporate Housing Schemes. Company also provides Finance on existing Property for business/ personal needs and also gives Loans to Professionals for purchase/construction of Clinics/Nursing Homes/ Diagnostic Centers/ Office Space and also for purchase of equipment.
Moreover, the Company also provides Finance to Builders and Developers engaged in the business of construction of houses or flats for residential purpose and to be sold by them.
(i) Loan Portfolio
LICHFL's Total Loan Portfolio mainly comprises of Individual Loan Portfolio and Project Loan Portfolio. Total Loan Portfolio of the Company has shown a consistent and good growth over the years. LICHFL's Total Loan Portfolio grew at a CAGR of 12% over last 4 Fiscal years.
During F.Y. 2021, Company's Total Loan Portfolio grew by 10% to INR 232,003 Crore as compared to INR 215,078 Crore in 2020. Out of the Total Loan Portfolio, the Individual Loan Portfolio stands at INR 216,047 crore as on March 31, 2021 as against INR 196,340 crore as at the end of previous year, showing a growth of 10%.
On the other hand, the Project Loan Portfolio stands at INR 15,956 crore as on March 31, 2021 as compared to INR 14,237 crore as on March 31, 2020.
Loan Portfolio of company's one of the closest Peers, Can Fin Homes grew at a CAGR of 14% over last 4 years. On the other hand, Loan Book of PNB Housing Finance, another closest Peer, grew at a CAGR of 6% over last 3 Fiscal years.
(ii) Loan Book Composition
LIC Housing Finance's Loan Book includes Retail Home Loans, Retail Loan Against Property and Developer Loans. .
(iii) Y-o-Y Loan Book Composition
Company focuses on developing a robust, Individual Retail-led Business Model. Moreover, from the current share of 77.90%, Company's target is to scale this to 90% and be a strong player in the Retail Home Loan Segment.
On the other hand, the share of Company's Developer Loans Segment to the Loan Book remains same for last 3 Fiscal years i.e. 6.8%. Company's Developer Loans Segment grew at a CAGR of 16% over last 5 Fiscal years.
(iv) Customer Segmentation
LIC Housing Finance provides Loans to Salaried and Self-employed Customers Group.
(iv) Loan originations by Source
Company has Multiple Channels and Touch Points to source Business. During F.Y. 2021, Company's 55% of Total Loans come through Home Loan Agents. Direct Selling Agents contributes 21% to the Total Loans. On the other hand, 11% of the Total Loans come through Direct Marketing.
Company's wholly owned Subsidiary LICHFL Financial Services Limited also contributes 8% to the Total Loans of the company. On the other hand, 5% of the Total Loans brings by Direct Relation Associated in the year 2021.
(F) Disbursement
Company's Total Loan Disbursements has shown a good growth over the years. Total Disbursements of the company grew at a CAGR of 7% over last 4 Financial years.
During Fiscal year 2021, LICHFL's Total Disbursements stands at INR. 55,223 crore against INR 46,936 crore in previous year, recording a growth of 18%. Out of this, Individual Home Loan Segment registered disbursements of INR 46,927 crore as compared to INR 37,539 crore in F.Y. 2020, showing a growth of 25%. Whereas, Total Disbursements under Project Loans are at INR 3,011 crore as against INR 2,618 crore for the previous fiscal year.
(G) Borrowings Mix
LICHFL has strong and well-diversified Resource Profile. Company also benefits from the strong brand image of its parent, LIC, and enjoys good financial flexibility with access to diverse funding sources at competitive Rates of Interest. There has been a continuous shift in sourcing of borrowings from Bank facilities to Market borrowings on account of competitive borrowing costs in the Debt Market.
Company's has decreased its borrowings through Non-convertible Debentures over the year i.e. from 79% in 2016 to 54% in 2021. On the other hand, company has increased its funding from banks, to 25% in the year 2021 from 10% in Financial year 2018.
Borrowings from Deposits has also increased over last few years i.e. from 5% in F.Y. 2018 to 9% in the year 2021. Also, Company's borrowings through Commercial Papers increased to 6% in he Fiscal year 2021 from 3% in F.Y. 2018. Share of Subordinate Debt to the Total Borrowings of LICHFL has decreased from 2% in 2018 to 1% in 2021. On the other hand, company has increased its share of funding National Housing Bank to 5% in F.Y. 2021, after remaining the constant at 1% from 2018 to 2020.
(H) Interest
(i) Interest Income
Company's Interest Income includes Interest on Loans & Advances, Interest Income from Investments, Interest on Deposits with Banks and Other Interest Income. Over the years, LICHFL's Interest Income has shown a constant and robust growth. In F.Y. 2021 Interest Income grew to INR 19,709 crore from INR 19,615 crore in the previous year.
On the other hand, Company's Interest Income grew at a CAGR of 16% over last 10 Fiscal years.
(ii) Interest Expend
(iii) Net Interest Income
LICHFL's Net Interest Income has grown at a CAGR of 14% over last 10 Financial years, showing a significant and constant growth.
In the Fiscal Year 2021, Company's Net interest Income grew by 9% to INR 5,259 crore as against INR 4,833 crore in the previous year.
Net Interest Income of Can Fin Homes grew at a CAGR of 27% over last 10 Fiscal years. On the other hand, PNBHFL's Net Interest Income grew at a CAGR of 34% over last 10 Fiscal years.
(iv) NIM (%)
Company's Net Interest Margin has shown a volatile growth over the years i.e. from 30.8% in the year 2011 to 2.70% in 2017 and to 2.37% in the year 2021.
(I) Group Structure
LIC Housing Finance has 4 Subsidiaries and 2 Associates.
(J) Distribution Network
LICHFL has one of India’s most extensive Marketing Network with 282 Marketing Offices, 9 Regional Offices and 24 Back Offices. It also has strong Network Channels including Home Laon Agents, Direct Sales Agents, Customer Relation Associates, Direct Marketing Executives and 46 branches of its 100% Subsidiary LICHFSL. Thus, Company enjoys a strong reputation of doorstep service.
Moreover, company cater to Non-Resident Indians in Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia through its Representative Offices in Dubai and Kuwait.
(K) Operational Parameters
(i) Gross NPAs to Gross Advances (%)
(ii) Net NPAs to Net Advances (%)
Overall Asset Quality has been deteriorating over the last few years. In F.Y. 2021, Gross NPA increased to 4.01% from 2.8% in the previous Fiscal year. On the other hand, Net NPA increased from 1.99% in the year 2020 to 2.70% in the F.Y. 2021. It is mainly due to continually reporting of higher NPA's by Individual Home Loan Segment, Developer Segment NPAs remain elevated, and weakening collection efficiency led by second wave of Corona pandemic.
(iii) Capital Adequacy Ratio (%)
Capital Adequacy Ratio has shown an inconsistent growth over the years i.e. from 14.88% in the fiscal year 2011 to 17.04% in the year 2016 and from 17.04% to 14.49% in the F.Y. 2021.
During F.Y. 2021, Company's Capital Adequacy Ratio increased to 14.49% from 13.89% in the year 2020.
(iv) Yield On Advances (%)
Over the years, LIC Housing Finance's Yield On Advances has shown a volatile growth. In the year 2021, Company's Yield on Advances de-grew to 9.06% from 10.02% in the Fiscal year 2020.
(L) Financial Parameters
(a) Capital Infusion to Improve Capital Adequacy & Gearing Ratio
On June 15, 2021, LIC Housing announced that promoter LIC will infuse capital of INR 2334.695 crore via preferential allotment and increase its stake. Capital Infusion will help the company to lower its gearing and improve their overall capital adequacy ratio. The shareholding of LIC shall rise from 40.31% to 45.24% of total shares of the company.
(b) Average Borrowing Cost Improved in Comparison to Previous Years
LIC Housing has a diversified Resource Profile. Furthermore, flexibility to raise funds from the parent supports LIC Housing’s resource profile. Company's average borrowing cost improved and stands at 7.2% for fiscal 2021 as compared to 8.2% in fiscal 2020, 8.4% in fiscal 2019 and 7.55% in fiscal 2018.
(c) Company Has Moderate Yield & ROA
LIC Housing has a high proportion of Individual Home Loans to salaried customers. As competition remains high, it restricts company’s ability to charge higher yields. Further, the company has a lower proportion of relatively higher-yielding non-housing loan book compared with other players. Also, the profitability of the Company remains moderate, with return on assets of 1.2% in the year 2021 similar to 1.2% for fiscal 2020.
(M) Management Discussion & Outlook
- Management expects bounce back after second wave to be similar as after first wave. And also expects meaningful pent-up demand in Tier 2 and 3 cities/ affordable segments.
- Management also added that Low interest rates and pent-up demand should drive strong growth going forth.
- As per the Management, this whole year has seen 18% share from Maharashtra due to stamp duty cut Similarly in Karnataka too.
- It also added that capital infusion by LIC will give lot of ample scope for the Company to further expand and also to leverage company's operations better.
- As per the Management, the company has done a revaluation of underlying Assets in the context of Covid, which led to higher GNPLs and provisioning.
(N) Opportunities and Risk/concerns
Opportunities
(i) Strong Promoter Group
LIC Housing Finance derives strong promoter support from its parent entity. Life Insurance Corporation of India (LIC) holds 40.31% stake in LICHF as on March 31, 2021. Further, the common brand linkage, agent network, funding and managerial support extended to operations of LICHFL indicate the strategic importance attached to LICHF by LIC.
Additionally as of March 2020, LIC has deputed more than 60 employees to LICHF to lend support to its functioning and management. Apart from this, LIC has nominated three Directors on the Board of LICHFL. The Company continues to derive strength from the depth and spread of demonstrated support extended by LIC.
(ii) Diversification In Products Basket
The Company is constantly modifying its Product Mix. The LICHFL's diversified Product Portfolio includes - Home Loans to Individuals, Home Construction Loan, Home Extension Loan, Home Improvement Loan, Corporate/projects Loan, Laon Against Property (LAP), Loan Against Security, Loan To Professionals, Loan under Security. This diversification in Products Basket helps the company to mitigate the risk by reducing the dependency on a particular product and Product Line.
(iii) Long-standing Track Record And Strong Market Position
LICHF has a long and profitable track record of operations in the Housing Finance Business of over three decades. Moreover, the company is the Second largest market player in the housing finance industry having a loan portfolio of INR 232,003 crore of as on 31.March.2021 as compared to INR 215,078 crore at the end of Fiscal year 2021.
Year-on-Year LICHFL's Market Share on the basis of its AUM is as follows -
(iv) Government Support
In the past few years, Government has taken initiatives for increasing the pace of growth of Housing Finance Sector. The housing finance industry has received a boost from the increased growth in the affordable housing segment in the last few years, which has been driven by the government’s vision of ‘Housing for all by 2022’ under the Pradhan Mantri Awaas Yojna (PMAY).
Also, the Government has introduced several measures during the last couple of years to improve the prospects of the Real-Estate sector. These includes the RERA, Benami Transactions Act, impetus for affordable housing construction, reduction of GST rates, Interest subsidy and tax saving incentives for home buyers etc.
(v) Adequate Capitalization
The Company has adequate capitalization levels. Over the years, LIC has been periodically infusing funds via equity and debt route. Continued parent support and strong resource raising ability enable the company in raising capital to meet its future business growth.
(vi) Increasing Affordability
With the Government initiatives, gradual decline in home loan rates, which are down - 350bps from their 11% levels in 2013 to 7.5% now, has increased affordability. Also, Home buyers have become extremely price conscious during the past few years.
As a result, developers are consciously reducing the average property sizes across cities to fit their properties in the expected budget range. Moreover, the demand for smaller units at prime locations is driven by increasing trend of nuclear families and working professionals/couples as they prefer to cut down on maintenance hassles and underlying costs.
(viii) Diversified Funding Profile
LIC Housing has a diversified Funding profile. Also, Company benefits from the strong brand image of its parent, LIC, as reflected in competitive borrowing cost and a diverse set of investors. This diversified Resource Portfolio helps the Company in mitigating risk reducing its dependency on one particular source of Funding.
Risk/concerns
(i) Increasing Competition
LIC Housing is a leading player in the Housing Finance Market. However, LICHFL faces competition from banks and leading HFCs primarily while lending to the salaried borrower segment. Competition in the industry is expected to remain high over the medium term, specifically while lending to the salaried borrower segment.
(ii) Impact of Covid-19
Covid-19 has been causing severe disruption in the social and economic activities across the world, and India is no exception. To break the chain of its spread, in India too, the government had to impose several curbs on social and economic activities through lockdowns from time to time, hampering production in several geographies, resulting in output and revenue losses for companies, and job and income losses for individuals.
During Q4 FY21, there was a renewed hope and enthusiasm with the severity of the pandemic tapering to a great extent and leading to a semblance of revival in economic activity and buyer demand for real estate. However, with the emergence of the more severe Second Wave of the pandemic, the situation continues to remain uncertain. The economic revival in 2021-22, inter alia, hinges on progress in vaccination, ramping up health infrastructure, reduction in lockdowns and resumption of normal economic activity.
(iii) Weakening Asset Quality
The asset quality of the Company has been deteriorating over the last few years, due to increasing stress levels in the underlying assets in recent years, driven primarily by the slowdown in the economy. As on March 31, 2021, LICHF’s Gross NPA has increased to 4.01% from 2.86% at end of FY 2020. On the other hand, Net NPA ratio of LICHF stands at 2.70% as on 31.March.2021.
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