Interest rates to be stable till next quarter
18^th Dec 2009

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 go…it 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.

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.

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.

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.

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.