BOB Housing Finance waits for the credit policy

At a time when major players in the housing finance industry are cutting their lending rates, the Jaipur-based BOB Housing Finance Ltd had decided to wait for announcement of the credit policy.

"We are waiting for the country's credit policy before deciding on altering our interest rates," says C.H. Palan, managing director. Thanks to last year's budget incentives, the housing finance industry is doing well. Further, for simple reasons like negligible default rate as compared to other lines of businesses, and availability of cheap finance, the industry has attracted several new players like ICICI, TVS group. And naturally, competition is severe.

While offering add-on products like consumer loans, variable interest rates to attract borrowers, the surest way is reduction of lending rates. Precisely what many of the HFC's are now resorting to.

But BOB Housing Finance is in a fix. Its cost of finance hovers around 11.39 per cent, which leaves the company with very little flexibility to tinker with its rates. Further, the Rs 15 crore equity-based company -- a 67:33 joint venture between Bank of Baroda and National Housing Bank -- is mainly dependent on Bank of Baroda for funds.

BOB Housing Finance has no other option except to wait for the credit policy. The reason? "We hope the credit policy will announce a cut in the bank rate and Bank of Baroda would pass on the benefit in the form of reduced rates," Palan explains.

But there is a catch here. With Bank of Baroda and other nationalised banks enjoying low cost finance getting into the lucrative housing finance in a major way -- housing loans are categorised as lending to priority sector -- their housing finance subsidiaries find it difficult to access funds from them.

Caught in this bind, and to augment its long-term finance needs, BOB Housing Finance has planned a Rs 35 crore par IPO, says P.K. Lauria, chairman. "We are talking to the merchant bankers for the purpose," he adds. For the current fiscal, BOB Housing Finance has scripted a nice performance, doing fresh business of Rs 135 crore (Rs 83.23 crore last fiscal). With this, the cumulative sanctions of BOB Housing Finance goes up to Rs 400 crore.

"The difference between sanctions and disbursements will be hardly Rs 4 crore. We will be closing the year with a profit of Rs 8 crore," Palan states. Last fiscal, the company earned an income of Rs 24.29 crore and a profit after tax of Rs 5.16 crore. "The earnings per share (EPS) works out to Rs 4.75 and the book value, which stands at Rs 18 now, is expected to go up to Rs 20 at the end of this financial year," says Lauria. The company's capital adequacy ratio stands at 11.39 per cent and post-IPO, is expected to be more than 12 per cent.

Interestingly, BOB Housing Finance is averse to public deposits. The company hasn't mobilised any sum through fixed deposits, though it is a cheaper source. Responds Lauria, "We don't want a mismatch of funds by raising them via fixed deposits, even though we can raise 12 times of our net owned funds which stands at Rs 28 crore. In fact, securatisation of loan portfolio is mainly to balance the asset:liability mismatches. For big players like HDFC, Hudco, it may be fine, but not for small companies like ours."

Speaking about the company's loan portfolio, Palan says that 85 per cent of it consists of loans to individuals and only the balance is advanced for projects. The positive shift towards loans to individuals from project loans started last year. Last fiscal, loans to individuals went up to 79.35 per cent (from 65 per cent the previous year) out of total sanctions.

While project loans given to Ghaziabad Development Authority and Allahabad Development Authority became sticky and were taken over by Bank of Baroda against Letter of Comfort, Palan says that the company is actually not averse to project loans. "We have, in fact, lent to Karnataka Housing Board projects in Trivandrum, Kochi, Bangalore, Chennai, Mumbai, Baroda...And our non-performing asset is less than one per cent of our advances." He adds that the company is active in the rural sector, lending about Rs 32 crore.

Meanwhile BOB Housing Finance is in the process of expanding its branch network. According to Palan, the company will be opening a branch at Rajkot, Raipur and Hyderabad next year, taking the total number of branches to 27.