Atoul Monga, General Manager of Basic Home Loan in an exclusive conversation with ET. Edited excerpts:
With interest rates tightening, what kind of impact do you see on the affordable housing segment and
also in the overall housing market?
With rising inflation in the country, rising interest rates were inevitable. In fact, most people who took home loans in the last quarter of FY22 were well aware that these low rates won’t stay long. Since the affordable housing segment is the most vulnerable to interest rate fluctuations and is dependent on EMI, the impact would be somewhat higher in this segment. Rising rates will surely deter some homebuyers from buying new homes, while many others may see an opportunity to buy before rates rise even further.
Even after the recent hike, mortgage rates remain below pre-pandemic levels. Thus, in the medium and long term, demand will rebound strongly again.
The Reserve Bank of India (RBI) is tightening regulations for fintech companies. As a lender, do you see any industry challenges?
Recent RBI regulations are more focused on payment companies to regulate BNPL players. This should not have too much impact on the mortgage market. On the other hand, RBI is quite optimistic to increase the penetration of home loans in India and in October last year, a circular was issued to streamline the risk weights on home loans by linking them to LTC (Loan- to-Cost ratios) for sanctioned loans. until March 2022.
This was a welcome move as it facilitated higher credit flows for individuals. In April 2022, RBI offered to extend this for another year. This actually releases pressure from lenders’ balance sheets and allows them to lend easily and more expensively to home loan buyers.
It seems that the winter of funding has arrived, already some startups have reduced their size and also let go of their staff. You are a Series A funded company, what has been your experience with investors?
Investors have become much more cautious and factor startup profitability into their investment theories. They talk a lot about profitability in their conversations, how unit economics will work for the business in the growth journey. They look for companies that solve real societal problems, use technology in a sustainable way and ensure that profitability is at the heart of their business model.
In such a scenario, what is your preference – profitability over growth or vice versa?
We believe that as a startup, both are important and you cannot build a business strategy solely based on the funding environment. As a company, we have always been cost conscious since our inception and have always worked to maintain a positive unit economy. We have collected about $4 million to date and our cumulative consumption till date, even after 2 years of existence, is about $1 million.
In fact, most of our consumption is in Capex to increase capacity for new businesses and future growth. Our core business is already profitable. We believe this is an opportunity as other market players are now working on their profitability. We are hiring everywhere to grow and be India’s largest mortgage distributor by March 2023.
In what areas have you been able to automate the home loan process for consumers? And with an economy still struggling, do you fear an increase in delinquencies?
Our Product Eligibility Matrix (PEM), an engine for matching products between customers and banks, recommends banks based on customer profile and property profile, an industry first. The digital engine reduces financial and time loss for customers who otherwise have to suffer due to processing fees paid to bad lenders.
Likewise, our document rules engine ensures that there is good documentation for the connection, the first time, which guarantees faster turnaround times and less operational hassle. We have also automated an end-to-end backend process for advisors that enables efficient client KYC and document verification using technology.
When it comes to delinquencies, what we observed is that our target customer is very credit conscious and pays on time. Although we have a small portfolio of real estate loans in the industry and focus primarily on affordable housing, we have observed that home is the single largest lifetime asset for low and middle income families, and their financial discipline is much higher than those with more disposable income on hand.
How do you see basic home loans in the future? Will it continue to be a middleman or will it seek to expand its portfolio?
When we started, we had two options, either start as a lender or as a platform/technology intermediary. We opted for the latter because as a lender we had limited advantages to develop but huge disadvantages which can even impact our balance sheet, so we decided to remain a technology platform.
Now, after two years, we are making close to Rs 300 cr in monthly disbursements and aim to make Rs 1,000 cr by March 2023. We have already launched several lines of business in terms of supply which range from en direct line, influencers and even builder links. UPS. We are working on more vertical businesses complementary to our activity, in order to achieve our objective of being a support company for the accession to the property for our customers.