Singapore-state fund Temasek-owned Fullerton India Credit Co. Ltd, a non-banking financial company is planning to establish a home finance company in India, a report said.
Buoyed by recent success in retail lending, Fullerton aims at granting loans to people in the affordable housing segment, according to a report in Indian publication Mint, which quoted Shantanu Mitra, the firm’s managing director and chief executive
The report quoted the Fullerton India chief executive as saying, “So far, we have kept away from housing finance because competition was tough and we could not compete with the banks on pricing. But now, with the network we have built, we think we can compete on pricing and also take advantage of the high returns this sector offers.”
Mitra further added, “These are the new opportunities coming up through which we can utilize our distribution network at a time when the macroeconomic environment in India is improving.”
Fullerton India has applied to the National Housing Bank for a licence to establish a subsidiary with an initial investment of Rs.100 crore ($ 15.68 million). The firms plans to lend to individuals seeking to purchase houses in both rural and urban areas.
Noting that their initial strategy would focus on smaller towns where Fullerton India has a branch network present, Mitra stated: “We will do a ticket size of Rs 25-40 lakh in urban areas, while in rural areas the ticket size could be Rs 5-10 lakh.”
Fullerton India will add 40 more branches across India over the next year. Currently, it has 443 branches in India, with a loan book consisting of loans against property, loans to small companies and entrepreneurs, personal loans and rural loans.
Profit increased 100-fold from just $470,000 in FY 2010-11 to $47.2 million in FY 2014-15, as the company tightened credit standards and reduced non-performing assets (NPAs).
NPAs have dropped to 2 per cent of the total loans, from a peak of 11.25 per cent in the fiscal year 2010. That year saw Fullerton India loose $112.46 million, writing off bad loans.
Interest income increased 24 per cent to $236.65 million in the year ended March 2015 from $190 million in the year ended March 2014.
Besides home loans, Fullerton India will also focus on lending to small and medium enterprises (SMEs) and micro-corporations, particularly in rural areas. Mitra explained: “There are something like 60 million units in India employing about 100 million people and contributing 8 per cent of the GDP (gross domestic product). The credit needs of this segment is fulfilled by only 10 percent. So it’s a large opportunity for us.”
This segment constitutes 30 per cent of Fullerton India’s 1.359 billion crore loan book. There are plans to increase its share to 40-45 per cent of the loan book over the next few years.
Temasek last infused $23.5 million into Fullerton India in September 2012. According to official statements, the Fullerton Indian’s capital adequacy ratio is maintained at 19.6 per cent.
Temasek has been extremely active in India off late, although the country accounts for only about 4% of its investments. It had recently picked up a 3.83% stake in Glenmark Pharmaceuticals Ltd for $151 million, in what was one of the largest private equity deals in a listed Indian pharma company this year, and the deal made the Singapore fund the single largest institutional investor in Glenmark Pharmaceuticals.
Fullerton India apart, the Singapore fund already owns a finance vehicle in India. It had recently completed the acquisition of SVB India Finance Private Limited, the specialty lending arm of Silicon Valley Bank, for $45 million, and rebranded it as InnoVen Capital India.
In a recent interaction, Rohit Sipahimalani, co-head, investment group; co-head, portfolio and strategy group; and head, India, at Temasek had said the company had no plans to merge SVB India Finance (now InnoVen Capital) with Fullerton India Credit Co. Ltd (FICCL).
Siphaimalani said “Both are very different. If you look at Silicon Valley Bank, it looks at very early stage companies that may not necessarily even have sustainable cash flows to repay.”
He added “You are looking at the background of the VCs, you are looking at the business model and their ability to raise equity to repay you – these are companies that don’t have free cash flow, and it is therefore a very different risk profile and also very different stages that the company is in. Fullerton is like an NBFC which does typical lending evaluation in terms of credit scoring for retail and small businesses. They are in different segments.”