'We are seeing a huge demand for home loans'

After weathering the December quarter, when the liquidity crunch was at its peak, LIC Housing Finance recorded a healthy 37 per cent growth in net profit for 2008-09.

R R Nair, director and chief executive, tells Sudeep Jain that the company has revised its growth target for the year.

How is business in this quarter?

This quarter has been very good for us and we are seeing a huge demand for home loans.

In the first two months of this financial year, we disbursed around Rs 2,000 crore (Rs 20 billion) fresh loans, which translates into 50 per cent year-on-year growth.

Loan approvals have increased at a much higher pace. And this growth has been driven by retail, not project finance.

After the election results, a number of projects that were struggling due to lack of funds have come back on track. Builders appear to have become more confident and the market looks good.

Are there any particular markets where you are seeing good growth?

Yes, NCR (national capital region), Mumbai and Bangalore. These markets were the most affected by the demand slump that we saw towards the end of last year.

In my view, home prices have more or less bottomed out and, in a few months, we may even see them go upwards.

What is your growth target for the current year?

Earlier, we had set a target of 25 per cent growth in incremental advances. But considering the way the demand has picked up in the past few months, we may see 30-40 per cent growth.

What is your liabilities mix at the moment?

NCDs (non-convertible debentures) account for 48 per cent of our liabilities while bank term loans account for 30 per cent. The rest is a mix between commercial paper, National Housing Bank refinance and foreign borrowing.

How are you doing on cost of funds?

The December quarter was very tough for everyone and our cost of funds had gone up to 12 per cent. Now, it has come down to around 9 per cent. The cost of incremental advances is even lower, somewhere around 8 per cent.

With the LIBOR (London Interbank Offered Rate) at record lows, are you looking at raising funds through the external commercial borrowing route?

The LIBOR is quite low and the spreads are high, but add-on costs, such as the cost of hedging against currency fluctuations, are still quite high.

Right now, domestic availability of funds is good. It doesn't make sense to look overseas for funds unless there is a price advantage.

What is the situation on the non-performing assets front?

We have been consistently reducing our NPAs for the last four years. In 2005, gross NPAs were 4.6 per cent. At the end of the previous financial year, they were 1.07 per cent. This year, they will be below 1 per cent.

How is your new financial services company, LIC Housing Finance Financial Services, doing?

LICHFL started operations in April and has five offices.

We will have 30 offices by the end of the second quarter. Over the next three-four years, we plan to set up 300-400 offices.

The company will employ about 30,000 people.

It will help us improve our distribution reach -- hopefully, it will double our distribution capacity and our business over the next three-four years.