After more than a decade with the Sundaram Finance group, Lakshminarayanan Duraiswamy was appointed the MD of Sundaram Home Finance, the group’s home financing arm earlier this year. He has taken over at a time when the country’s economic activity, which was already facing turbulence, has come to a near standstill since end-March on account of the COVID-19 pandemic. And, demand for home loans has weakened considerably. Edited excerpts:
How has your first quarter as MD been?
It almost feels like a year! It is a very interesting time to be in the financial services space.
A lot has changed, in several aspects, since March 24. For the large part, our offices have remained shut. Our initial focus was to ensure safety of our employees, not searching for business deals. Everything that was in pipeline, remained in pipeline.
March end is always an important period for recoveries. When it got truncated, the concern was about collections as the moratorium circular came later in April. And then we reached out to customers over phone and managed the moratorium exercise.
We have all been working from home. Initially, the thought process was that this would impact our lives for about three months. Now, it looks like it will be another three months before life is back to normal again. Even in States that have got down to working, there have been starts and stops. We opened for 4-5 days and then had to close for a week when the scenario got worse in that city or town. This has not helped business. We had just one disbursement in April. There was a little more in May. With the opening up last month, June was slightly better and now July looks much better.
So, gradually, we are seeing an upward trend. However, the concern remains regarding buyer behaviour.
Will they will buy a big apartment or a small one? will they look at Tier 2 and 3 towns as against larger cities? – the answers to these and more are still in the air.
This month, about 75% of our branches have opened, but activity levels are not as before. The present situation in the country and across the world is unprecedented but I believe this is a long-term growth story and I am confident that we will emerge stronger from these challenging times.
Affordable housing has been touted as the next big growth segment within real estate. How is it looking now?
This segment will be the biggest lever of growth, going forward. Also, there is only one way that housing loans in India will go and that is up.
However, the segment is the hardest hit because of COVID-19 and hence it may not grow in the next one year. In India, it is appropriate to define affordability in housing as being a function of three broad parameters — the monthly household income of prospective buyers, the size of the dwelling unit, and the affordability by the home-buyer. First and foremost, the affordable housing customer seeks a strong value proposition. This will most likely be the biggest investment in his/her lifetime, and will form the starting point for the long-term welfare of his/her family.
Given the uncertain environment, it is likely that prospective buyers will think twice about investing in a house as they will want to save money for now. While the government is incentivising affordable housing both to builders as well as to customers, it may not activate buying in the immediate term.
But in 3-5 years, it will be the fastest-growing segment in the real estate space. Builders will get into this segment and build standardised apartments. The selling cycle will be also faster here.
But there is already unsold inventory in real estate…
Even before COVID-19, real estate had faced a lot of headwinds. We would still be talking today about unsold inventory even without COVID-19. There have been no new launches in the last four months.
Prospective sellers refused to sell even in the pre-COVID days as they were waiting for a better price. How long big builders hold on to price, is something one has to wait and see. Over time, this could become illiquid and prices are likely to come down.
In secondary sales, people may not sell if they have no immediate need for cash. The only resale in the current scenario would be by those for whom there is an emergency or who think that the worst is yet to come.
Given this scenario, how will your financial metrics look now?
We are reworking our metrics – disbursements, portfolio quality and profitability. Given the current disruptions and the ongoing lockdowns, we are currently monitoring weekly and monthly trends.
We will wait until the offices are fully open and have access to customers before we decide how the rest of the year will play out.
Currently, buyers are adopting a wait-and-watch approach.
If there is no activity for six months, the pie will definitely shrink and then there will be a scramble for the assets available. It does not contribute to growing the market.
How has your fund raising been in the first quarter?
In Q1, we raised ₹1,200 crore, primarily to shore up liquidity and to provide for buffer, given the moratorium impact on cash flows, uncertainty around extent of lockdown and resumption of business.
Fund-raising for the rest of the year will depend on the cash flows, the post moratorium situation, and the disbursement levels.
In such a challenged environment, how do you see residential rentals?
The real estate market will go through upheavals. There will not be too many new launches in the near term as economics may not work for the builders. Tenants are likely to renegotiate for lower rentals as businesses are slowing down and people are experiencing salary cuts and job losses. I am already seeing it happening in the residential segment.
Have you had to enforce salary cuts or lay off people because of COVID?
Thankfully, we have not had to resort to either of these. In fact, we handed out increments and bonuses in April to our employees. We are looking at this as a temporary phase even though the lockdown has been longer than what we had originally thought.
Have you seen a stronger inflow in your deposits in Q1?
Much to our surprise, our traditional depositors, who have always had a liking for touch and feel in terms of filling FD forms and visiting our office personally have quickly adopted to our online model. Despite the fact that we reduced our rates from May 1, we have had 225 new first time depositors in the last quarter. We have raised ₹75 crore in Q1, primarily through deposits by individuals, and that compares favourably with the Q1 of last year. The deposit route is stable and growing.
How do you see the Government’s role in reviving the economy?
These are fairly challenging times for the government. Healthcare issues, economic slowdown, demand and supply crisis have all happened at the same time. In 2008, there was a financial crisis that hit specific segments and earlier in the dotcom bust it was again specific segments that were affected. For the first time in recent history, the country has been hit by every crisis that you could possibly visualise. Healthcare vs. economic growth – what should be the focus. This is a huge challenge for policy-makers. It is a ‘damned if you do’ and ‘damned if you don’t’ kind of scenario for them. Economy getting back is important, but for that to happen healthcare issues need to be solved.
Till a vaccine is found, it will have to be a trial-and-error method. Masks, self-hygiene and social distancing will be the way forward for all of us till the vaccine arrives. Economic agenda may not take precedence at this time. It is difficult to think of economy when there is a fear around life.
Do you think that cash transfers will have to be made and what are the viable options?
In addition to the COVID relief already rolled out by the government, an economic plan post-COVID-19 is also required. We should remember that pre-COVID-19, there had been a slowdown in the economy and there were debates around whether it was demand-led or supply-led. Therefore, merely putting money in the hands of people will not be enough.
We will need to have a clear plan that we can implement when COVID-19 is behind us; job creation will have to be the first focus; along with increased supplies to meet the demand. This requires varied set of reforms – labour laws and land reforms, among others. In the last few years, economic reforms have been undertaken — the IBC, RERA, steps towards financial inclusion, and bank consolidation are a few examples. While all of these are forward-looking policies, the course of the pandemic will determine a large part of this. The government’s steps to support the rural economy are welcome and well-directed. May be there should be additional steps to support the MSMEs directly. However, our eventual revival beyond COVID-19 has to be about creating sustainable jobs and output.
The question of putting more money in circulation can be achieved in several ways — RBI subscribes to GOI bonds, RBI surplus transfers to GOI, OMO purchases etc. But this is a difficult choice to make as when we finally emerge from COVID-19, it would have left wounds. That remains our dilemma. As I mentioned earlier, once COVID-19 is behind us, we have to create ample jobs and increase our output, so that the demand eventually created by this printing can be met sustainably.