Chennai: The city-based two-year-old Sundaram Home Finance Company (SHFC) is planning to mobilise Rs 125 crore to meet its growth plans and to cut its finance cost. The company will be calling its three promoters very soon to contribute the balance Rs 25 crore equity.
It also plans to float a five-year non-convertible debenture to the tune of Rs 50 crore and raise a similar amount from the International Finance Corporation (IFC), Washington DC, as rupee loan. "Our aim is to raise the loan amount at a coupon rate of less than 11 per cent," says the SHFC executive director S Ramabadran.
For starters, SHFC is a three-way joint venture between Sundaram Finance (holding 65 per cent stake), IFC (20 per cent) and FMO, Netherlands (15 per cent). The company started its operations with a paid-up capital of Rs 25 crore, while the authorised capital was Rs 50 crore. It is this balance the company intends to call now.
Ever since it started operations SHFC has been financing its lending programmes through term-loans from banks around Rs 145 crore and a refinance facility from the National Housing Bank. Only now the company is accessing the public for fixed deposits. Ramabadran says his company has raised fixed deposits to the tune of Rs 13 crore.
The heavy reliance on term-loan eats into the companys wafer-thin margin of 1.5 to 2 per cent. The problem is further compounded with the intense interest-rate war that the housing finance sector is now witnessing. "Securitisation of assets is yet another route from which we plan to raise resources, but we will take one more year to get into that activity," he says.
About the companys performance ever since it started operations, SHFC managing director Nitin V Palany says: "Our focus is always on retail lending; we dont do any project financing." But with builders consent, the company does give its seal of approval to some projects after checking the title deeds and other aspects. "This offers property buyers comfort levels, which means some business for us."
Palany says the company has sanctioned loans to the tune of Rs 225 crore and disbursements stands at Rs 165 crore, with an average loan-size of Rs 4 lakh. About the Rs 60-crore difference between the sanctions and disbursals, he says: "Our disbursements depend on the progress of construction as we lend the amount in phases." The company lends for new home purchase, extensions or improvements to existing home, purchase of land and for professionals for non-residential purposes.
"Last fiscal we closed with an income of Rs 6.5 crore and an after tax profit of Rs 1.17 crore," says Ramabadran. "The company targets to earn Rs 24 crore this fiscal and book a profit of Rs 2 crore."
Predominantly a Tamil Nadu-based player with five branches and five customer relation offices (housed in Sundaram Finance branch premises), SHFC also plans to expand its operations in the other three southern states. Currently, the company has one branch each in Andhra Pradesh, Kerala and Karnataka. In order to expand its reach to smaller towns, it has converted a bus into a mobile office.
About interest rates, Palany says: "Our interest rate is 12 per cent for loans up to 10 years and 12.25 per cent if the loan period goes up to 15 years." When cited HDFCs lower processing fee is 1.8 per cent to SHFCs 2-per cent rate, Palany attributes that to his high cost of funds. "Nevertheless, we are now charging just 1 per cent as processing fee. This festival offer is valid only for next few days."
Justifying the industrys practice of charging processing fee, though it is its primary function, Ramabadran says: "We cant meet the long-term administrative cost relating to borrowers from our margins. We have to send periodical statements to our borrowers and other communications, and it costs money."
Says Palany: "We offer better value-added services to our borrowers. All our borrowers are covered under the personal accident insurance cover. In addition, their property is insured for a nominal premium against risks like fire, earthquake and other natural calamities."
SHFC is negotiating with group company Royal Sundaram Alliance Insurance to offer its borrowers household and health insurance covers.