Mr. R Ramachandran Nair, Director & Chief Executive, LIC Housing Finance Ltd. (LICHFL) has held various prestigious positions in the past in India and abroad. He may be credited for establishing a new composite Insurance Company in Saudi Arabia Saudi Indian Company for Cooperative Insurance at Riyadh and successfully completing its IPO in 2007. Prior to his appointment as Director & Chief Executive (LICHFL) Mr. Nair was Director, Management Development Centre, LIC of India in Mumbai.

See when the rates go down, how many organizations follow that speed in which they move it upwards? There are organizations which have revised the rates twice in a month (upwards), when rates went down, has anybody meticulously followed the same trajectory? questions R. Ramachandran Nair amidst Question Answer session with Harsh Roongta and Bienu Vaghela of ApnaPaisa.

We present here the excerpts of the Q & A session:

LICHFL is being perceived as a Public Sector Player. Is it advantageous or not?

As far as stock market is concerned it is not an advantage, because PSUs are not valued that much as their private sector counterparts.

As far as we are being perceived as PSU, I will share with you that there is a lack of understanding about the work culture of LIC, like in LIC, many Chairmen have changed since 1950s, but systems have remained in place because we follow the practice of putting systems in place. We believe that system works, and not the management only. Our day to day activity is not driven by the top management, unlike in some Private Sector Companies, where CEOs have to give the direction on a minute to minute basis. In our organization, it is all very well defined so there are absolutely no issues about it.

Ideally CEO should not interfere with the functioning of the Company. He should be in the role of facilitator and should work towards developing the image of the Company. The role should be more outward looking rather than inward looking. In his role as CEO, he should create an environment to induce confidence in the people. I believe if in your absence, system works then you are a good manager. If you leave the organization, still the Company continues to do well, then you are a success. That is the litmus test.

 

In home loans, the PSU banks ( your counterparts, if we say so) are becoming fairly aggressive though it is not a big percentage of their balance sheet. Are their systems geared to do that? Is a bubble being created with low teaser rates?

It is important to know that motivates them (the PSU banks), whether it is social orientation, or profit orientation or is it because of directive of some share holders (in many forms) directives. This so called aggressiveness, if it is not because of first two reasons then it is not sustainable. What is motivating them cannot be said. But there is lot of Government intervention so if focus gets shifted then it gets diluted. This so called aggressiveness is possibly a temporarily induced activity. And as far as these teaser rates goit is important to know what is the real growth they have in numbers.

 

You mean to say that social orientation is sustainable?

Yes, our purpose of existence is to cater to the social well being of the society also.

 

But you are a commercial organization at the end of the day

With LICHFL, our purpose of existence is not only for the profit but also for the purpose of the society. Our existence has to have a social relevance even if we are a commercial organization. We must remember that we are catering to the social requirement or the national requirement.

 

How would you explain profit aspect of it

When there is a profit orientation, then single most focus is how to create more funds but where there is a balance between the social orientation and profit orientation, then it makes the difference. We may be getting some percent extra there but yes, our reason for existence is social. This is the difference between a big organization and a great organization. Great organization works towards serving the purpose of society at large, not just that their Company is making profits and the employees are getting high salaries.

 

SBI claims to be the largest home loan lender, what do you have to say on that

No comments.

As far as we are concerned, our portfolio is growing at 32% and not at 40% which is due to our conscious strategy. Existing customer is also very important, if not more than the new customers. New customer is going to be the existing customer of tomorrow.

HDFC is offering at the rate of 8.25% and existing customers are paying 9.25%. Existing customers have to be taken care as well as new customers. If you are growing your portfolio then it is definitely growing to generate revenue at a later date. Our portfolio has been growing because we are not losing old customers and we see that as investment in future. Switching becomes that much lower. These teaser rates are temporary rates because in future our average works out to be much better and that is what you need to look at.

 

How much teaser rate has helped the customer?

There is a saying, if you cannot convince, confuse. This is what is happening in the market. We have an offer rates of 8.75% (floating rate) which was there even before this price war etc.

That's only for the first quarter after that it has been linked with the PLR, as fixed. Looking at your PLR today, the rate which you are offering today will immediately jump after three months to 10% .

What banks offer after three years is 1.5% PLR which comes to 10.25% whereas ours is 9.75% so there is a difference of 50 basis points. If you have 15 years loan, you have 12 years at 50 basis points more which will cost you 6% more whereas in the initial two years, you are paying only 1.35% more to us. ( LIC HFL at 8.9% and other banks 8 8.5% for initial two years)

What is the rate if it is common for all slabs or is it slab wise, that is the differentiator, and we have to look at that also. We are simply comparing it with the initial offer. We are little better of because we are giving this rate upto Rs. 75 lacs. So customers in the range of Rs. 50-75 lacs will find us cheapest. Nobody is giving this rate till Rs. 75 lacs.

In rates we are nearest to the cheapest and in service we are nearest to the best. That is how we have positioned ourselves. Some technological applications are taking some time which may be stabilized soon. We will be able to offer loans on real time basis, so approval may take 24 hours only.

What do you have to say that when media carries initial rates, we mention that these rates are only for one year, what is the effective rates etc. Are customers taking that into account?

For first year they are quite clear and customer knows what is the effective average, even though it is a complicated calculation.

Does customer consider BRAND before zeroing on the lender?

As this is not a consumer durable but a financial transaction, more than branding a customer looks for the track record of the company, consistency of the policy and the transparency norms followed.

See when the rates go down, how many organizations follow that speed in which they move it upwards? There are organizations which have revised the rates twice in a month (upwards), but when rates went down, has anybody meticulously followed the same trajectory? When rates went down, we reduced 200 basis points. This is the track record and the type of transparency our organization follows.

I would give 90% marks to our business growth on this count. Customers not only take the track record into account but also how we are treating the existing customer. Then service is another aspect of the business. So for doorstep service customer does not mind paying 25 basis point more.

Brand constitutes all the above, it is a function of all these things.

Still all said and done, property prices play a major role as this permanently benefits the customers. Interest rates going up and down, is not a sustainable factor at all. Its people's perception that interest rate is driving the market. Interest rate is only fraction of your total investment.

 

What will happen to interest rates?

Interest rates will be stable for next three months.

 

What kind of increase one can expect after that?

It may move upwards around 50 basis points but they are going to remain stable.

 

As far as LICHF is concerned what are the challenges?

Challenges are there when you have kind of ambitious plans and to meet up these plans, you need to have continuous challenges. We create such targets and plans that there is continuous challenge.

 

What are your marketing plans?

We are going by the quality and not compromising on the standards of the organization. We are rather very stringent. With this kind of growth in place, we have to be careful about the quality we are offering.

We are very clear that no growth should be there at the cost of quality. We place our recovery mechanism and marketing on the equal footing. We pass on the benefit to the customers.

Placement of new agents is taking place, replacements of unproductive agents is on. We have started distribution of financial products which will double our distribution capacity in couple of years and 30 offices have already started which will be increased to 200 offices across the country. This will be very good enhancement of the distribution system. This is the long-term plan.

 

How do you look at the competition?

It has always been HDFC. Though it is not competition but co-existence. For our qualitative improvement, we see HDFC as benchmark, to the extent of improving ourselves and not for the competition. Whatever operation area we take up, we want to be one of the best.

Mission of the company which was adopted way back, is to be the best housing finance company in India and we have taken significant steps towards that.

 

About LIC Housing Finance Limited

LIC Housing Finance Ltd is one of the largest housing finance companies in India having one of the widest networks of 158 marketing offices across the country and representative offices at Dubai & Kuwait. It was promoted by Life Insurance Corporation in 1989 and a public issue was made in 1994. It launched its maiden GDR offering in 2004. The company enjoys AAA rating from CRISIL indicating highest safety with regard to the ability to service interest and repay capital. The Fixed Deposits of the Company are rated FAAA/stable by CRISIL.