SHFL innovates on collateral-free lending

 Shriram Housing Finance (SHFL), the mortgage lending arm of Shriram Group, aims to touch 100 cities by end of this financial year, a top company executive told Deccan Herald recently.

“Currently, we are present in 17 states and have 74 branches across India. By the end of this financial year, we want to touch 100 branches pan-India. We have a manpower of 550 and will add up to 250 in headcount,” Shriram Housing Finance Managing Director and Chief Executive Officer Sujan Sinha said.

SHFL received its licence from the National Housing Bank (NHB) in August 2011 and began operations in March 2012. In April 2012, the Shriram group raised Rs 170 crore in tranches from Mauritius-based private equity firm Valiant Partners for a premium, totaling nearly 23 per cent stake. The first tranche of Rs 80 crore came in 2012, and the remaining in July 2013. Public-listed Shriram City Union Finance brought in a similar amount, subscribing to SHFL shares at face value, and holds 76.5 per cent.

The Mumbai-based housing finance firm’s assets under management (AUM) till date is at around Rs 950 crore. The company has achieved 130 per cent y-o-y growth. Sinha says, “Frankly, I am very cautious about saying, let’s look at absolute numbers. But...more or less on the organic business we are the leaders.”

On targets, Sinha explains, “We want to go and approach under-served segments which are in tier-II and tier-III towns. With enough funds in hand, I will go to such markets and see what the demand is...the moment I start setting the targets...for me the problem is targets run me, instead of actually we going and doing something.”

He added, “Surprisingly, 72 per cent of my borrowers are self-employed and 28 per cent are salaried (most of them from unorganised segments). For us, it is a completely different ball game. We are targeting different sets of categories like tea stall owners, roadside laundrymen, and vegetable vendors.”

Wary customer selection

On asked how SHFL lends without collateral, Sinha explains, “That is how we are different. For us it is a manual process. My sales team sits down with these guys over three to five visits...they look at their customer footfalls. Based on that, they would be able to gauge the daily cash receipt and we decide how much to lend.”

He added, “For us, this entire customer acquisition is little cumbersome. That is why we lend at 15 per cent (home loans) and LAP (loan against property) at 17-18 per cent. The segment is very difficult.”

Sinha said while SHFL has crore-sized loans in larger locations, the average loan size across the portfolio is around Rs 11 lakh. “We don’t encourage our branches to concentrate on large ticket sizes...because we don’t understand the risks.”

The company gets good amount of referrals from the chit business. Sinha said, “There are four states — Karnataka, Andhra Pradesh, Tamil Nadu, and Maharashtra — where the chit funds business is growing immensely. We often get referrals from the large number of chit fund agents.”

On the demand for affordable housing, Sinha said, “Very clearly, demand is huge, but untapped. Even today, I would say 85-90 per cent of the business which Shriram is doing is to first-time borrowers....”