From registering disbursements of Rs 1,254 crore in FY21, Chennai-based Sundaram Home Finance Ltd.-a 100% subsidiary of Sundaram Finance Ltd.-has more than tripled disbursements to Rs 3,978 crore in FY23.
Over the last 12 months or so, the company has been expanding its branch network and hiring people at a fast clip. It has opened over 20 branches in the small business loan segment and is now looking to open 10 branches in the affordable housing segment. The company has hired over 400 people in the last couple of years and is continuing to hire this year.
The new branch expansion over the last year has been in Tier-2 and 3 cities of India where they target the self-employed customer segment in smaller towns. “We are seeing increasing demand for home loans in these locations and will continue to strengthen our presence to tap into this growing demand,” said D Lakshminarayanan, managing director of Sundaram Home Finance.
In a free-wheeling interaction, Lakshminarayanan outlines the growth opportunities.
Edited Excerpts From The Interview:
You took over as managing director of Sundaram Home Finance on April 1, 2020, just when the whole world was encircled by a virus of an unusual kind-Covid 19. Over three years have gone by since then. How has the journey been so far?
D Lakshminarayanan: This phase has been really good. There has been a resurgence in the real estate space after the second wave. None of us saw it coming. We thought it was a revenge buying. But it went from strength to strength. The extent of the revival is not something we expected.
The market has been resilient and we are seeing real demand from genuine buyers. We are well-poised to grow. There is a certain robustness in the economy that gives us the confidence that the near-term looks bright for us. The last couple of years since the end of the second wave have been good for us, especially considering the fact that the years leading to the pandemic had seen a slowdown in the real estate sector.
Structural changes happened one after another in the form of demonetisation, introduction of Goods and Services tax, and the Real Estate Regulatory Authority. They had all dampened the spirit and did have a short-term impact on the demand.
After Covid-19, how have things panned out?
D Lakshminarayanan: Work from home is almost on its way out. All schools are back to physical locations. We are also seeing some long-term factors that are driving demand in the real estate sector. RERA has definitely brought about transparency in the system, and the builders are now abiding by the guidelines. It has made a positive difference for the real estate sector.
What are the new factors that are driving the home demand?
D Lakshminarayanan: Affordability has gone up, including in smaller towns. This has led to a real demand for homes in tier-2 and tier-3 towns. Also, the investor-led demand has waned in recent years. This has meant that the volatility in the real estate sector has come down quite a bit. We are now seeing genuine buyers looking for long-term investment in homes.
The employment opportunities in smaller towns have significantly gone up as a result of IT companies and online retailers expanding their presence in these locations. This, too, has helped in demand for homes going up in tier-2 and tier-3 towns.
Another interesting development is that technology has made it a level-playing field and this has given rise to more job opportunities for people in these towns. Tier-2 and tier-3 towns are growing at quite a good pace. I don’t see this trend abating in the near-term.
Almost all our new branch expansion over the last year has been in these locations. Our growth strategy will center on targeting the self-employed customer segment in smaller towns. We are seeing increasing demand for home loans in these locations and will continue to strengthen our presence to tap into this growing demand.
Given this, what has been your strategy for growth?
D Lakshminarayanan: Sundaram Home Finance had made a foray into the small business loan segment in October last year, targeting tea sellers, grocery shop owners, tailors and similar small-time entrepreneurs. During the first year, we have already opened over 20 exclusive branches in Tamil Nadu to disburse loans of up to Rs 20 lakh to small businesses for their working capital.
We are now entering the affordable housing segment and plan to hire up to 75 people and open 10 branches by March 2024. We will be using tier-2 and tier-3 towns as a platform for growth in the affordable housing segment.
We believe our understanding of these customers and our ability to assess them will be a differentiator. We think that the affordable housing segment has the potential to be a fast growing one for us in the long-term.
What has been the profile of home buyers? How has this changed since Covid-19?
D Lakshminarayanan: The average age of home buyers is coming down from mid-40s to mid-30s. We are now seeing people buying homes within five years of their first job. We are receiving a number of home loan enquiries from youngsters and this is a positive development in the home finance space.
The increasing trend of nuclear families is also driving demand. Infra development, such as increasing the number of metro rail networks, is also helping boost the housing demand. In tier-2 and tier-3 towns, we are seeing an increasing number of self-employed people taking out loans, while in the cities, it is more the salaried class.
How critical is the interest rate in deciding on buying a house?
D Lakshminarayanan: We had seen a number of increases in the interest rates last year, but this did not dampen the demand for home loans. We don’t think that interest rates are a deterrent to home buying. People see this as a long-term asset and rise in interest rates does not affect their decision to buy homes.
What are the challenges faced by a home loan company at the moment?
D Lakshminarayanan: The biggest challenge is on the people front. We are constantly striving towards providing a great environment to make the entire team work together as one. How to keep your people intact-that is going to be the biggest differentiator, going forward.
How spread out are you in terms of geographical presence?
D Lakshminarayanan: We have a strong presence in the south market. We believe that we still have a lot of opportunities to expand in these geographies. We have around 15 branches… in Madhya Pradesh, Maharashtra, Rajasthan, Gujarat and the east. These branches have registered strong double-digit growth. We will continue to expand our presence in these states where we have already established a presence.
What are the growth targets for the year?
D Lakshminarayanan: We registered disbursements of Rs 3,978 crore last year and are targeting a growth of 25% this year. The disbursements in the first five months of the year give us the confidence that we are on track to hit this target.
What could inhibit the growth?
D Lakshminarayanan: There has to be economic growth in the country as that will lead to more employment opportunities. The global environment is always a factor that has to be taken into account. We are currently in a growth phase and are confident of posting good growth numbers this year.
How will a consolidated HDFC Bank Ltd. impact the home finance space?
D Lakshminarayanan: It is too early to talk about that as we have to see how the integration works and what they do with the new model. What is interesting, however, is that a significant chunk of origination will now be with the bank (and not as a housing finance firm).
This is a huge market, nonetheless. We believe that we will continue to have enough opportunities to grow our business in tier-2 and 3 towns. On the liabilities side, this will benefit housing finance companies in terms of increased access to funds since HDFC Bank will not be able to borrow as a HFC.
Looking back at 3.5 years as MD, how satisfied are you?
D Lakshminarayanan: When I took over at the peak of Covid in April 2020, it was all gloomy. People were all down. There were health issues that affected our employees and their family members. The morale was generally low.
Coming off Covid, just to instill confidence in the team that we could come back strong and register solid growth was a big task. I had to make them believe in themselves after what they had gone through in wave 1 and 2.
To register a 70% growth in disbursements in 2022-23 against this backdrop was very satisfying. I also asked the team to be confident to try out new things without the fear of failure hanging over their head. That’s how we took the call to venture into the two new segments.
What would you like Sundaram Home to be?
D Lakshminarayanan: I would like Sundaram Home Finance to be a well-respected home finance company and a relevant player in this space.
KT Jagannathan is a senior financial journalist based in Chennai. He has been in business journalism for over three decades, covering corporate developments and critical industry verticals. He is the co-founder of www.carnaticdarbar.com, a news website for Carnatic music, a niche art form.
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