Mumbai: Piramal Finance Ltd, the non-banking finance company of the Piramal Group, has set up a housing finance company that will offer home loans through realty developers and direct lending to retail customers. Piramal Housing Finance received the licence from the National Housing Bank, the regulator for housing finance companies, on 4 September, the company said.
“We have been lending to developers already. Now our focus is to build the retail business in the home loan segment. For this, we will leverage the relationship we have built with various realty developers and our partnership with the Shriram Group that has the necessary expertise in retail lending,” Ajay Piramal, chairman of Piramal Enterprises Ltd, said.
Piramal said the housing finance company has been set up as a standalone company under Piramal Finance with an initial capital of Rs1,000 crore.
“If we need more capital we may also look at fund-raising through equity and non-convertible debentures,” he said. The housing finance company will not engage in the business of construction finance. The lending model will be “B2B2C” (business to business to customer).
“Our developers have been asking us to start a home loan business. Real estate is something we understand. The B2B2C model will help us in maintaining asset quality as the developer loans will be hedged,” said Piramal.
Piramal Housing Finance has garnered Rs200 crore worth of assets since launch and will be targeting self-employed customers in particular. It has so far tied up with 15 developers for 30 projects. The firm has a team of 150 people for the home loan business.
The housing finance company, although bullish on affordable housing, is also looking at large-ticket loans of Rs25 lakh and above. “We believe there will be consolidation in real estate business and only the top developers will thrive. There will be appetite for good projects,” said Khushru Jijina, managing director of Piramal Finance and Piramal Housing Finance.
Asked if the home loan business will compete with Shriram Housing Finance Ltd, Piramal said the businesses will be “complementary and not competing” because the Piramal HFC will offer bigger loans.
Piramal Housing Finance will not be setting up too many branches but will follow the “hub and spoke model” for serving customers. It plans to set up only two branches in Mumbai. “We will initially start off with the metro cities and later tap the tier-2 and tier-3 geographies,” said Jijina.
The size of the housing finance market is estimated to be Rs15 trillion, according to Harshal Patkar, senior analyst-financial institutions, India Ratings and Research Ltd, a credit rating company.
“For Piramal Finance it was a logical step to mine existing relationships with the developers by generating leads for home loans. It will, however, take some time for them to set up the affordable housing finance business as understanding local geography as well as setting up infrastructure would be a time-consuming process,” Patkar said.
Piramal Finance has also applied for an asset reconstruction company licence and is awaiting approval from the Reserve Bank of India. In August last year, Piramal Enterprises and Bain Capital Credit, a global credit specialist, signed a memorandum of understanding to invest in stressed assets in India.
“We will look at partnering with Bain for the ARC as well. Both Bain and Piramal have the expertise to turn around stressed businesses,” said Piramal, adding that the ARC will look at large restructuring opportunities in the steel, auto ancillary, power and cement sectors.
Piramal Enterprises has assets under management of over Rs50,000 crore in the real estate segment. By 2020, the firm expects the loan book for the home loan business to reach Rs15,000 crore.