Cholamandalam Investment & Finance Co is an Indian financier for vehicles, the company is now planning to set up a mortgage-finance unit undeterred by a credit crunch that is rolling shadow banks in the country.
A housing finance subsidiary is going to help the company grow its loan book faster as said by Cholamandalam’s Executive Director Arun Alagappan. The company is going to target buyers who want to buy low-cost homes and then provide the loan as much as Rs 15 lakh, he said.
PM Narendra Modi’s administration has pledged to make homes for the poor families in the country by 2022. A government plan to offer benefits including interest subsidies has seen a surge in funding for affordable homes and lured buyers and financiers such as Cholamandalam even as the collapse of Infrastructure Leasing & Financial Services Ltd. led to a cash squeeze at shadow lenders.
According to Alagappan:
“We see a huge opportunity. We are doing loans where we have the capability to underwrite loans.”
India is planning to build 10 million houses in urban areas by 2022. It has already managed to build 2.64 million houses until Aug. 13. That compares with a shortage of 18.78 million homes in towns and cities and 43.67 million in rural areas, according to the National Housing Bank.
Cholamandalam is going to transfer around 26 billion rupee housing loan portfolio to the new housing subsidiary once they receive their license.
The housing finance license is going to be beneficial for Cholamandalam because of refinancing options from National Housing Bank, which is known to supervise housing finance companies.
There are other incentives as well. Under the government’s Pradhan Mantri Awas Yojana, the housing program meant for urban areas, the state will subsidize interest on mortgages of as much as 1.8 million rupees.
In the meantime, a malaise hits luxury homes has started afflicting affordable property as well. Nine of the major cities in the country, at the end of June, had more than 400,000 low-cost units priced below 4.5 million rupees that couldn’t be sold, according to data available with PropTiger.com.
“Even at the time of crisis when we went to banks for fundraising, we did not have any issues of raising money,” as stated by Alagappan. He also added, “For more than 20 quarters, Cholamandalam hasn’t had an asset-liability mismatch, which has been the cause for trouble for many non-bank firms.”