LIC Housing Finance, the largest housing finance company (HFC) , will adopt a cautious stance on project loans segment as it is seen as high-risk category, after the recent change in regulations on provisions by the Reserve Bank of India (RBI), said Tribhuwan Adhikari, Managing Director and Chief Executive Officer.
“We will be cautious and guarded as our past history is not very good in the project loan space for a particular period. We are guarded as it has an element of high risk and a cautious approach will be a part of this,” Adhikari said at a press conference in Mumbai on May 16.
The company’s project finance portfolio fell by 5 percent on a year-on-year (YoY) basis in FY24. Total portfolio fell to Rs 2,560 crore in the same period from Rs 2,697 crore in FY23.
The commentary from the MD and CEO is crucial as it comes after the RBI released the draft norms on May 3.
The norms specify that when a project is in the construction phase, lenders would have to set aside a provision of 5 percent of the loan amount. This will reduce to 2.5 percent, once a project is operational.
On this, Adhikari said: “This is a regulatory guideline and we have to follow it but if there are opportunities in construction and project finance with higher provisioning, I would go into it.”
Focus on affordable housing
Adhikari also said that the HFC would want its affordable housing book to grow to around 20-25 percent from the existing 10-12 percent in 3-4 years.
The company plans to increase focus on the affordable housing segment. “We are in the process of moving towards affordable finance as we feel that it has a lot of opportunities. We will definitely go into tier-3 cities and we have made some structural changes in the organisation. We wanted to open 50 area offices in these towns. So, out of the 50 offices planned, we have opened 46 in these tier-3 towns,” said Adhikari.
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Corrective measures on RBI penalty
On April 6, RBI imposed a penalty of Rs 49.7 lakh on LIC Housing Finance for non-compliance with certain provisions of the Fair Practices Code.
LIC HF, the RBI said, did not disclose the rate of interest and the gradation approach of risk and the rationale for charging different interest rates to different categories of borrowers in loan application forms and sanction letters.
Adhikari said that the company has started to take corrective measures on this front.
“We had charged an excess interest rate of around Rs 1.26 crore from a borrower in 2021-22. Now, we have started repaying and we have repaid around Rs 90 lakh. We are trying to contact the borrower since the account is old. As a precautionary measure, we are repaying a similar extra interest charged in 2022-23 to another customer.”
Q4FY24 numbers
In the last reporting quarter of FY24, LIC Housing Finance posted a 7.5 percent drop in net profit to Rs 1,091 crore, compared to Rs 1,180 crore in the corresponding quarter last year. The decline in net profit was due to a one-off expense.
The net interest income (NII) of the HFC jumped by 12 percent to Rs 2,237 crore. The company faced an additional tax expense of Rs 127 crore related to deferred tax liabilities from the previous years and it set aside Rs 100 crore for expected credit losses to meet board guidelines.
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“Disbursements in FY24 has been muted. In Q4, it grew 15 percent and we are confident that we will record double-digit growth in FY25,” he said.
