Renu Karnad, Executive Director of HDFC Ltd.,
spoke to Dr Ranjan Das and Manoj Khatri about the key forces
that drive the housing finance sector, the competitive scenario,
HDFC’s leadership position and how HDFC is leveraging technology
to serve its customers.
The
housing finance industry has undergone a metamorphosis in the
last decade or so. Can you chart the growth of the sector in
terms of increase in disbursements and number of consumers?
What are the key factors that have driven this change?
The housing
finance industry has definitely gone through a major change,
resulting in increased competition. HDFC was the only company
back in the 80’s to offer home loans and related range
of products. Today, it’s a different story altogether.
The RBI’s guidelines for commercial banks to earmark three
per cent of their incremental deposits for housing finance marked
the entry of commercial banks also into this sector Entry barriers
are negligible if one looks at the demand for housing finance
in the country today. A recent study by CRIS INFAC showed that
the market requires funding of over Rs 140,000 crore over a
five-year period. Banks have gone all out to address this demand.
This has resulted in a significant increase in the number of
distribution points for housing finance products and the emergence
of alternative distribution channels like DSAs (direct sales
agents). Another development is the amount of freebies on offer
- from free insurance to products with fixed interest rates
(but fixed for a certain period only). However, a lot of these
freebies come along with a fine print. While there may not be
any significant barriers what is more important is to have efficient
appraisal and processing systems in place, the domain knowledge,
earn confidence and trust of people and the will to understand,
innovate and provide customized solutions all the time while
keeping the NPA’s and costs under control. The name of
the game is profitability with growth and the ability to sustain
this in the long run.
What
are key forces that have driven demand for housing during the
last decade? To what extent has the demand been fuelled by factors
such as changing lifestyles, the nuclear family concept, lack
of robust investment options and the need for more luxury and
comfort?
There’s been
an evident shift in perception and mindset in the Indian middle
class over the last five to ten years, thanks to the impact
of liberalisation and opening up of the Indian economy, a rise
in average income across households, and a palpable desire to
own things ‘now’. The most crucial aspect of this
‘shift’ in the consumer’s mindset is perhaps
explained by the fact that the young (or Generation Next) are
more in charge of their lives and eager and impatient to assume
the world. It’s a generation that is independent, self-reliant
and nuclear in nature. And it is this eagerness to succeed that
has fuelled a drive to own what one desires the most: a home,
a car and a healthy lifestyle. Other drivers have been incentives
from the government to buy homes, improved quality of buildings
and property services and a bouquet of financial options. Tax
concessions, property price dips and lower interest rates have
also helped. But what’s helped more is the change in consumer’s
mindset over a ‘loan’ being a stigma, the extra freedom
of making an informed choice, and flexible, customised finance
options coupled with mutual trust. A broader issue has also
been the migration of industries to smaller towns, leading to
rural progress. With villages turning into towns and towns becoming
metros, the property market is progressing steadily. This revolution
has directly resulted in greater demand for not just housing
but also for related facilities like sanitation, transportation,
medical aids, power and water, and the overall infrastructure.
Besides
the traditional parameters along which competition is normally
differentiated, are there new dimensions/USPs emerging in the
sector? How valuable are these offerings to the segments being
targeted?
There is a lot of talk about USPs in financial
services, but I think that the concept of having a USP by itself
is being questioned. A lot of banks have entered the housing
finance market, but without realising that the nature of the
industry is such that hard sell won’t work. For most of
the middle class, buying a house is still a once in a lifetime
decision, and it should be pondered upon with great care. Aggressive
selling through DSAs can work to build volumes. But I don’t
think they are equipped with the right kind of knowledge to
provide value to the consumer in an issue as complex as this,
especially when the situation changes from state to state and
city to city. The consumer needs solutions, not loans, and that
is the point that players need to understand. Product differentiation
is also negligible since products can be easily replicated.
Interest rates, though an important factor in the value chain,
are still only one link in the chain. There are a lot of other
aspects a consumer needs to consider, like the long-term implications
of the entire transaction, how fixed is a fixed rate, property
value and builder reputation including his track record, and,
chiefly, the right to information to make a sound investment
decision. Today, there is only one differentiator that decides
the real value - the core strengths of an organisation. It is
the expertise of your people, your ability to handle technical
and legal aspects, your systems and processes, the forward-looking
vision of your technology implementers, and your organisation’s
service skills, which are the building block that predicates
all one does. This is what any organisation in the Indian housing
finance sector should aspire to be.
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