Monday, July 13, 2015

Why Repco is the Fastest Wealth Creator in Home Finance?

What happens when a Housing Finance Company (HFC) proves that each and every one of the first principles of home finance business can not only be 'violated', but turned upside down? Ironically, that firm, Chennai-based Repco Home Finance, has become one of the fastest growing housing finance operations in the country, without sacrificing asset quality a bit.

To what kind of homebuyers does the country’s largest housing finance companies like HDFC or largest banks like SBI or ICICI lend? To the safest of the safe customers like well-employed professionals, with either job security or the security of being in an in-demand profession.

Will these institutions lend to the non-salaried class? Generally not, as commonsense suggests that only such well-employed pros can take on the impact of a heavy and long-tenure debt like a home loan.

Will HDFC, SBI, or ICICI provide home loan to a rural shopkeeper or agriculturist? Even if his finances and assets are healthy, they generally wouldn’t as he won’t be having a proper balance sheet or CIBIL score to accompany his application.

Will these institutions provide loans to the so-called affordable segment of homebuyers? Again, most probably no, as commonsense suggests that those looking for sub-15 lakh kind of home loans would not be as financially stable as those looking for 30 or 50 lakh plus kind of loans.

Giving those kinds of loans would cause NPAs to surge, goes the conventional wisdom. These are the unshakeable first principles of housing loan business on which companies like HDFC  built up huge home loan portfolios of nearly Rs. 2 lakh crore.

But, South India focused Repco Home Finance has 'violated' all these first principles, and turned some of them upside down, to emerge as one of the fastest growing housing finance operations in the entire country.  

The Chennai based Joint Sector firm promoted by state-owned Repco Bank lends primarily to non-salaried class like shopkeepers, small traders etc.

Its home loan portfolio is dominated by rural customers at about 75%. And Repco’s focus is on the affordable segment with average ticket-size being Rs. 12 to Rs. 15 lakhs.

Despite all these factors, Repco is not only growing at a furious pace of around 30% annually, but doing so in a safe and high quality way, with Net NPA less than 1% and Net Interest Margin at an industry leading 4.4%.

No wonder then that discerning investors including some of the world’s most reputed FIIs have made a beeline for Repco Home Finance’s stock since its IPO in early 2013.

The stock is up by nearly 360% since April 1st 2013. That makes Repco a 4.6X multibagger within 2 years, a period in which HDFC stock struggled to grow by even 70%.

How Repco has done this next-to-impossible achievement is by a slew of innovations like personal business visits, creating balance sheets out of customers’ simple ledgers, and relying on its own in-house developed credit appraisal system that has proved to be quite robust.

Repco Home Finance is led by its Managing Director R Varadarajan, who also heads Repco Bank as its MD, and was previously with Syndicate Bank.

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