LIC Housing plans to raise Rs 500 cr via public deposits

LIC Housing Finance, the home loan arm of Life Insurance Corp, aims to raise Rs 500 crore through public deposits in 2009-10. The move is part of it strategy to shed dependence on the wholesale funding market.

The company last year received permission from the Reserve Bank of India to raise deposits from the public and raised Rs 170 crore.

“We thought, instead of depending on the market, we should have our own source of funding. That was the reason for floating the deposit scheme. We are in the market for 20 years, we have our brand value, so raising funds was not a problem,” said R R Nair, director and chief executive officer, LIC Housing Finance.

To attract customers, the company plans to offer rates at least 10 basis points higher than rates in the market.

“The rate is different, ranging from 8-8.25%. We give 25 basis points extra for senior citizens. But if banks reduce rates we will have to reduce according to market,” Nair said.

The company’s average cost of funds in 2008-09 was 9.15%. Borrowing costs picked up between October and December as the ripple effects of the global financial crisis reached India.

Nair said the company decided that even if it faced acute liquidity crisis, it won’t borrow at above 12% interest rate. “We fixed a benchmark rate for borrowing, so that helped us.

Also, funds were always available — we could have always tapped our parent,” Nair said referring to the cash rich parent company.

Nair said LIC Housing has not for funds from LIC in the last 3-4 months as the market offered a reasonable rate.

Just last week, it raised Rs 300 crore by issuing non-convertible debentures (NCDs) at 6.8%.

He expects borrowing rates to remain in this same range “for sometime to come.”
“As a consistent policy the company keeps a surplus of Rs 500 crore always. We look at cash flow and depending on the requirement for a month, we see to it that we get enough funds so that we don’t go into a crisis,” he said.

A majority of LIC Housing’s funds (53%) come from issue of NCDs.

Banks and other financial institutions lend 28%, while 7% comes as subsidised financing from parent LIC and housing regulator National Housing Bank.

Nair said he expects fund costs to come down by at least 50 basis points between April and June, which will allow the company to lower lending rates.

“Already this year (2009), we have reduced rates by 150 basis points after increasing it by 125 basis points last year. Interest rates will be soft… unless there is serious intervention in the market,” he said.

Customers will have to wait until July for the change in rates, however, because LIC Housing reviews its rates only every quarter, in January, April, July and October.
“Even if it’s an increase or decrease, we stick to this; we don’t change rates in between.
A customer should know for certain that the company follows this policy and can rely on that,” he said.

Nair said there have been signs of recovery in the real estate market in the last two months.

“Since middle of February, it has really started picking up. In March, we had 42% growth in disbursements and overall, in the fourth quarter (January-March), we had 22% growth in disbursements.”

“We believe that this quarter also, growth will be good. For the year, we are expecting a minimum of 25% growth,” he added.

Nair expects real estate prices to start rising in the next 5-6 months. “Demand has started picking up and there is a good liquidation of existing in-time inventory.

Once that is done and the cash flow of builders is better, then possibly, they may think of increasing the price.

So it is desirable that one should go to buy property in the next six months,” he said.
Is there an acquisition on the horizon? Nair said he won’t spend unless there is some “value addition.”

“It has to give us something, like presence in a place where we are not present. We have a good spread and network, so there are no plans for now,” he said.

LIC Housing plans to open 26 branches this year, adding to the 130 already running.
It also plans to convert four smaller outlets into full-fledged branches, taking the total to 160 by the end of 2009-10.