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Message from the Chairman
My Dear Shareowners and friends,
I take, great–pleasure in presenting before you the performance of LIC Housing finance Limited for the year 2009–10. The year has been of excellent business growth and repeat of 'still better success story of charting road map of further reduction of NPA levels as compared to previous year.
The global economy continues to recover backed by ongoing policy support and improving financial market conditions. The recovery process is led by Emerging Market Economies (EMEs), especially those in
The Reserve Bank of
The uptrend in industrial activity continues. The index of industrial production (IIP) recorded a growth of 17.6 percent in December 2009,16.7 percent in January 2010 and 15.1 percent in February 2010. The recovery has also become more broad–based with 14 out of 17 industry groups recording accelerated growth during April 2009 – February 2010. The sharp pickup in the growth of the capital goods sector, in double digits since September 2009, points to the revival of investment activity. After a continuous decline for eleven months, imports expanded by 2.6 percent in November 2009, 32.4 percent in December 2009, 35.5 percent in January 2010 and 66.4 percent in February 2010. The acceleration in non–oil imports since November 2009 further evidences recovery in domestic demand. After contracting for twelve straight months, exports have turned around since October 2009 reflecting revival of external demand.
Various lead indicators of service sector activity also suggest increased economic activity. On the whole, the economic recovery, which began around the second quarter of 2009–10, has since shown sustained improvement.
(source: RBI's monetary policy statement for the year 2010–11)
Indian Housing Finance scenario:
The decrease in property prices and uncertainty over growth in income levels, on the back of economic slowdown in the second half of the previous year led to some slackness in housing finance disbursements in the year 2008–09. However, with the gradual recovery in economic conditions, the demand for housing finance improved in 2009–10. Further, reduction in the interest rates during the second half of 2009–10 also pepped up demand for housing finance.
Over the last few years, the share of housing finance companies (HFC) has been increasing in the housing finance segment, mainly due to their cautious approach in credit underwriting, perception of better customer service, and increasing focus on urban centres which have higher average ticket size. The HFCs are expected to further raise their share in total disbursements, despite the introduction of teaser loan rates by banks. HFCs too have reduced interest rates to meet competitive pressures from banks. The launch of lower interest rate schemes on home loans by public sector banks has led other private banks and HFCs to follow suit. Hence, yields are estimated to have fallen by around 50 basis points in 2009–10. At the same time, cost of funds has also reduced because of abundant liquidity in the system. As a result, gross spreads and net margins across player groups are expected to fall by 15 – 20 basis points in the current financial year.
CRISIL Research has observed that the asset quality of banks in the housing finance segment has been deteriorating significantly in the past'2–3 years, as against HFCs, who have been able to maintain their asset quality. During 2003–04 to 2007–08, the banking sector, especially private sector banks, had aggressively increased home loan lending by adopting higher loan to value ratio and instalment to income ratio thereby allowing customers to borrow more than their repayment capacity based on their income level, which resulted in higher NPA in the said segment.
Due to the recent downturn, these weak loans began to show up in terms of poor asset quality as the borrowers were not able to pay their monthly instalments. In addition to the dilution of underwriting standards, seasoning of the portfolio after a period of rapid growth had played an important role in increasing the level of banks' NPAs. Hence, gross NPAs of banks in the housing loan segment increased significantly during 2007–08 and 2008–09.
Banks have already started tightening their credit standards, and their NPA levels are expected to witness moderation as the proportion of fresh loans generated with tighter underwriting standards gradually increases. On the other hand, HFCs have been cautious in their credit approach by adopting lower loan to value ratio and instalment to income ratio, resulting in considerable lower NPA levels.
LIC Housing's stride in progress:
Interest income from housing loans increased 19.47 percent from Rs.2,747.65 crore in 2008–09 to Rs.3,282.66 crore in 2009–10.
The net interest income grew by 21.33 percent from Rs.731.04 crore in 2008–09 to Rs.886.94 crore in 2009–10.
Profit after tax surged 24.56 percent from Rs.531.62 crore in 2008–09 to Rs.662.18 crore in 2009–10.
Funds mobilized grew 51.98 percent from Rs.11,188.33 crore in 2008–09 to Rs.17,004.35 crore in 2009–10.
Sanctions (Ind.+Proj.) increased 65.55 percent from Rs.10,898.47 crore in 2008–09 to Rs.18,043.17 crore in 2009–10.
Loan portfolio grew 37.58 percent from Rs.27,679.28 crore in 2008–09 to Rs.38,081.38 crore in 2009–10.
Net interest margin declined by 25 basis points from 2.95 percent in 2008–09 to 2.70 percent in 2009–10.
Return on equity reduced by 425 basis points from 23.80 percent in 2008–09 to 19.55 percent in 2009–10 on account of 65.95 percent growth in equity holders' fund due to increase in capital and retained profit for the year 2009–10.
Net profit margin improved by 77 basis points from 18.31 percent in 2008–09 to 19.08 percent in 2009–10.
Gross NPA declined by 38 basis points from 1.07 percent in 2008–09 to 0.69 percent in 2009–10.
Net NPA levels declined by 9 basis points from 0.21 percent in 2008–09 to 0.12 percent in 2009–10.
Earning per share grew 17.36 percent from Rs.62.59 in 2008–09 to Rs.73.46 in 2009–10.
Book value strengthened from Rs.263.04 in 2008–09 to Rs.356.85 in 2009–10.
It is worth mentioning here that your company through untiring efforts and proactive action has not only ensured consolidation of the gains achieved in the past years, but also ensured further growth and increased profitability. The company would continue its efforts to reduce NPAs further. Your Company has surpassed all the expectations and managed to beat the industry growth rate. It is on trails for achieving still greater heights. It is commendable that even in difficult, competitive environment, all the employees have teamed up, performed well extraordinarily and lived upto their commitment for growth of the company.
LIC Housing Finance Limited has been playing a significant part in the economic and social life of the country, with its impeccable brand image and transparent policies and practices. The Company would like to remain focused on all areas that are likely to impact, favourably, the customers, the stakeholders, the employees and above all the society. The Company's vision, values and philosophy has brought us together this far making this journey extremely rewarding for each one of us. Our progress lies in our capabilities and commitment to stay on the course of a challenging strategic path. In this unfolding era of new opportunities, I look forward to your active support and good wishes to make the coming year, a year of still greater achievements and success.
T. S. Vijayan
28th April, 2010