summer internship project
INTERNSHIP
atIndiabulls Housing Finance Ltd

Topic: Housing Finance Companies: A
Comparative Analysis and Industry Overview
Submitted by
AKSHITA ANAND
Roll No: 23013
Batch 23, Section: A
XAVIER INSTITUTE OF MANAGEMENT & ENTREPRENEURSHIP
Hosur Road, Electronic City, Phase II, Bengaluru 560100

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DECLARATION
I affirm that the project titled “Housing Finance Companies- A Comparative Analysis and Industry Overview” being submitted in the partial fulfilment of the requirement for the award of Post Graduate Diploma in Management at Xavier Institute of Management and Entrepreneurship is a bonafide work carried out by me. This has not been submitted to any other University or Institution for the award of any degree/diploma/certificate or published any time before.

Date:
Name: Akshita Anand Batch 23; Roll no – 013
ACKNOWLEDGEMENTI am obliged to Indiabulls Housing Finance Limited for permitting me with a great opportunity to work as a summer intern in their company for a duration of 2 months.

I express my special gratitude to my reporting mentor, Mr. Aman Verma, Regional credit Head, Indiabulls Housing Finance Limited whose continuous guidance, attention encouragement and suggestions helped me incomparably to complete my project report.

I am also very grateful to Mrs Swati Chawla for her constant support and guidance for providing information important for the project report and also for helping me in every problem I faced.

A very courteous thanks to my faculty guide at Xavier Institute of Management & Entrepreneurship, Mr Anand S, for his unending support and encouragement to make me complete my project report thoroughly. .

I would also like to thank the entire Indiabulls Housing Finance Department for providing me their precious time and making this internship a successful learning experience.

EXECUTIVE SUMMARY
Housing is a necessity in every civilized nation and a basic indicator of growth and social well-being. Housing development is not just important for the GDP of a country, but is one of the most important tools for economic development considering its multiplier force on various industries like construction and infrastructure sector; creating demand for related industries and creation of immense job opportunities.

The main motive of the study is to understand the housing finance market in India and the flow of money in an economy. This study includes the introductory portion giving a brief introduction about the housing sector and the company, followed by the industry overview of housing finance in India.

The study shows the analysis of Indiabulls housing finance limited as a HFC, its products and services, financial statement analysis of the company and comparison with other companies in this industry. It also gives a brief understanding of the loan process followed by the company which reflects why it has a low NPA in comparison to Banks and other such companies.

Industry Overview The housing finance in India is divided into 3 parts:
The banking system
NBFCs
HFCs
BANKING PRODUCTS AND SERVICES

Driving Influence in the Industry
Pradhan Mantri Awas Yojana
Pradhan Mantri Awas Yojana (PMAY) is an initiative by Government of India in which affordable housing will be provided to the urban poor with a target of building 20 million affordable houses by 31 March 2022.It has two components: Pradhan Mantri Awas Yojana (Urban) (PMAY-U) for the urban poor and Pradhan Mantri Awaas Yojana (Gramin) (PMAY-G and also PMAY-R) for the rural poor.The features of Pradhan Mantri Awas Yojana are that the government will provide an interest subsidy of 6.5% on housing loans availed by the beneficiaries for a period of 20 years under credit link subsidy scheme(CLSS) from the start of a loan. the houses under Pradhan Mantri Awas Yojana would be constructed through a technology that is eco-friendly, while allotting ground floors in any housing scheme under PMAY, preference will be given to differently abled and older persons. Pradhan Mantri Awaas Yojana was launched in June 2015 with an aim to provide affordable housing to urban poor.78Under PMAY, it is proposed to build 2 crore houses for urban poor including Economically Weaker Sections and Low Income Groups in urban areas by the year 2022 through a financial assistance of
 ?2 trillion (US$30 billion) from central government. HYPERLINK “https://en.wikipedia.org/wiki/Pradhan_Mantri_Awas_Yojana” l “cite_note-house2-3” 312 This Mission has four components viz., In-situ Slum Redevelopment with private sector participation using land as resource, Affordable Housing through Credit Linked Subsidy, Affordable Housing in Partnership with private and public sector and Beneficiary led house construction/enhancement. Under these components, central assistance will be in the range of ?1 lakh (US$1,500) to ?2.30 lakh (US$3,400).

HOUSING FINANCE COMPANIES
2757805240601500A company registered under the Company’s Act, 1956, having primary objective of providing finance for housing is known as Housing Finance Company. The different type of home loans is loan for home purchase, home extension, home construction, buying a residential plot of land or home improvement. Several HFC’s also provides non – home loans such as loan for commercial property, loan against property, lease rental discounting and loans to real estate developers.
LIST OF SOME HFC’S IN INDIA
Housing Development Finance Corporation Ltd.

Indiabulls Housing Finance Limited
DHFL Vysya Housing Finance Ltd.

LIC Housing Finance Ltd.

PNB Housing Finance Ltd.

Tata Capital Housing Finance Limited(TCHFL)
Aadhar Housing Finance Private Limited.

ABOUT THE COMPANY
Indiabulls Group

The Indiabulls Group is an Indian conglomerate headquartered in Gurgaon, India. It was founded by Mr. Sameer Gehlaut (Chairman) in 1999, and operates in sectors spread across housing finance, real estate ; wealth management. The three main independently listed companies of the group are Indiabulls Housing Finance Limited (IBHFL), Indiabulls Real Estate Limited (IBREL), and Indiabulls Ventures Limited (IBVL). The group had combined revenues of over ? 22,114.9 Cr. and PAT of over ? 6,072.2 Cr. as on 31stMarch 2018. All the group companies are listed on the Bombay Stock Exchange, and the National Stock Exchange. The combined market capitalization of these companies for the financial year 2017-18 was ? 75,838.2 Cr. It is one of the top dividend paying groups amongst the Indian listed promoter owned group/companies.
In 2013, Indiabulls Financial Services reverse merged with its own subsidiary Indiabulls Housing Finance to form the flagship company of the group.

Indiabulls Housing Finance Ltd. (IBHFL) is the 2nd largest private housing finance company in India, regulated by the National Housing Bank (NHB). It’s an ‘AAA’ rated company and a part of one of India’s leading business conglomerates – ‘The Indiabulls Group’, which was established in 1999 with business’ spread across housing finance, real estate and wealth management.
Millions of Indians aspire to own a place that they can call home. At IBHFL, the collective efforts are directed towards fulfilling these aspirations and dreams of their customers.They have serviced more than 1 Million customers and have cumulatively disbursed home loans of over Rs. 1.97 Trillion as of the last financial year. They pride themselves in having a workforce of over 8111 employees, more than half of which is dedicated to customers and sales, serving as the pillar on which they can meet the many needs of the segment.

It ensures that the interest of all its key stakeholders – customers, shareholders, investors, bankers & employees are taken care of. Imbibed in all business plans and activities that they undertake is a strong focus on staying true to their core values and goals.

Core Values:
Customer First
Transparency
Integrity
Professionalism
Goals:
To ensure utmost convenience in the home buying experience
Making housing finance more affordable/viable by contributing towards the organization of the housing finance sector In keeping with the principle to continually working towards greater ‘customer convenience’, we are equipped to tend to you over our website and mobile application with with e-Home Loans providing completely online home loans – from application to disbursal. The entire gamut of our services will assist you in an all-inclusive home buying experience is available for you to avail anytime and anywhere.

In keeping with the principle to continually working towards greater ‘customer convenience’, we are equipped to tend to you over our website and mobile application with with e-Home Loans providing completely online home loans – from application to disbursal. The entire gamut of our services will assist you in an all-inclusive home buying experience is available for you to avail anytime and anywhere.

Network
Over 220 well-appointed and accessible branches in 110 towns and cities across India
2 representative offices in Dubai and London offering services to NRIs/PIOs
Combining efficiencies in products, services and processes, we are committed to providing the best home buying experience and be your perfect home loan partner.

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COMPETITORS
TOP 5 COMPETITORS IN THE HOUSING FINANCE SEGMENT

SIZE OF THE LOAN PORTFOLIO AND MARKET SHARE
Home loans comprise 60% of the firm’s total mortgage loan portfolio of Rs9,500 crore. Home loan disbursements grew 36.4% year-on-year (y-o-y) and assets under management for home loans grew 41.4%. IBHFL’s home loan portfolio of stands at Rs5700 crore, of which about Rs4900 crore worth of loans fall under the affordable housing category as of Oct 2017.

introduction to the project
The company, Indiabulls Housing Finance Ltd. (IHFL) wants to analyse where it stands amongst the various companies in Housing Finance market segment. The study shows an analysis of the company and comparison with the industry, their borrowing profile, annualized growth, products and services, key players of the market and the government initiatives.

A comparative study of companies existing in the Hosing Finance market segment was done on the basis of their Liquidity and Profitability ratios and of their Non-Performing Assets. After comparing some HFC’s such as HDFC, Indiabulls, LIC Housing Finance, GRUH Finance and DHFL, I came to know that they have an edge over Banks and NBFC’s when it comes to NPA.A study was conducted at Indiabulls Housing Finance Limited to know what all checks they have in place to have a check on their NPA which has not changed much. It is stable as compared to banks, where it is increasing.
The Financial reports of the various HFC’s were taken into account to make an analysis of its ratios.

BASIS OF COMPARISION

1.Net Worth: A minimum amount of capital is necessary to maintain the safety and soundness of the financial institution. Capital adequacy acts as an important indicator to build and maintain the investors’ confidence in the NBFCs. It helps the NBFCs to absorb the risk of potential losses in the adverse Economic conditions and provides a hedge against insolvency. It reflects the ability of the top management to raise the additional capital for the further needs. Following ratios are taken into consideration to judge the capital adequacy of the two NBFCs.

Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth. In the corporate world, net worth is also called book value or shareholders’ equity. The word “net”, in financial language, means “after subtracting expenses and debts.”
A consistent increase in net worth means assets are growing faster than debts, and indicates good financial health. Conversely, when liabilities grow faster than assets, or when the value of assets drops, net worth decreases, indicating financial problems.

Debt Equity Ratio: Debt/Equity (D/E) Ratio, calculated by dividing a company’s total liabilities by its stockholders’ equity, is a debt ratio used to measure a company’s financial leverage.

2.Asset Quality: Quality of the assets should be the parameter to assess the financial health of the financial institution rather than the quantity of the assets. It shows the pattern of employment of funds to generate the earnings for the NBFCs.

COMPARISION OF TOTAL ASSETS OF SOME HFC’S

Return on assets: The return on assets ratio measures how effectively a company can earn a return on its investment in assets. In other words, ROA shows how efficiently a company can convert the money used to purchase assets into net income or profits.

3. Management Efficiency: Efficiency of the management decides the future of the business. It is the management which takes all important decisions relating to capital structure, earnings and assets of the business on the basis of their risk perception. Management efficiency of the NBFCs can be ensured by proper planning, coping with changing environment, adherence with regulatory framework and generate the earnings by maximum utilization of available resources.

Return on Net worth (RONW)/RETURN ON EQUITY: It shows the capability of the management to use the shareholders’ funds to create the maximum returns for them. It is very useful ratio from the shareholders point of view to analyze and compares the returns while investing. It is obtained by dividing the net profits (after int. and taxes) by the shareholders funds. Higher ratio shows better efficiency of the management.

4. Earning Quality: Sustained earnings provide the strong base to the NBFCs to grow in the future, to remain competitive and to increase the capital base internally. Quality of earnings is reflected in the form of higher profitability and continuous growth in earnings which shows better utilization of its assets.

Asset turnover ratio: Asset turnover ratio measures the value of a company’s sales or revenues generated relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.

Net profit margin: It is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company’s total revenue.

Return on capital employed (ROCE): It is a financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. ROCE is calculated as: ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

5. Liquidity: Adequate liquidity is required in any business to take the advantage of favorable investment opportunities and to meet the short term obligations when they arise. Housing loan NBFCs in the category of not accepting public deposits, liquidity does not pose major challenge for them which are otherwise the greatest challenge for their banking counterpart.
Liquid Assets to current liabilities: This ratio reflects the overall liquidity position of the concerned NBFCs. Housing loan NBFCs hold liquid assets in the form of cash in hand and bank balances.

Liquidity of a company is checked through various ratios, such as
Current Ratio
Quick Ratio
Dividend Payout Ratio
Earnings Retention Ratio
Cash Earnings Retention Ratio
Liquidity ratios of the above mentioned companies are compared

The Current and the Quick ratio of the above companies are same.

6. On the basis of Sales: Net sales is total revenue, less the cost of sales returns, allowances, and discounts. This is the primary sales figure reviewed by analysts when they examine the income statement of a business. The amount of total revenues reported by a company on its income statement is usually the net sales figure, which means that all forms of sales and related deductions are aggregated into a single line item. It is better to report gross sales in a separate line item than just net sales; there can be substantial deductions from gross sales that, if hidden, would prevent readers of the financial statements from seeing key information about the quality of sales transactions.

7. On the basis of its EPS: Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability. EPS is calculated as:
EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares

8. Earnings Yield: Earnings yield are the earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company. The earnings yield is used by many investment managers to determine optimal asset allocations.

9. On the basis of its Non-Performing Assets: A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.

NPA Status of various Housing Finance Companies
INDIABULLS
.
HDFC

GRUH Finance

LIC Housing Finance Ltd

Rating agency Crisil has warned that non-banking finance companies and housing finance companies are expected to be hit hard by delinquencies in the loan against property (LAP) market that is likely to rise 70 bps to 3.3 per cent this fiscal.Delinquencies in the loan against property (LAP) market are set to rise 70 basis points (bps) to 3.3 per cent this fiscal, even as underlying risks stemming from moderating growth, intensifying competition and falling yields come to the come to the fore, Crisil said in a report today.The rise in delinquencies (measured by 90 days’ past due date has been sharper and sooner than expected, affecting NBFCs and HFCs.

“Interestingly, the rise in delinquencies last fiscal is not uniform. While large HFCs and a few NBFCs with robust diligence ecosystems managed their portfolios well, some others have reported over 100 bps increase. We believe systemic delinquencies will rise further as LAP portfolios season,” Crisil said.The LAP segment has been growing at break-neck speed, with assets under management rising 17 per cent to Rs 1.7 trillion in FY17 from Rs 1.5 trillion in FY6, which was a 29 per cent per cent growth over FY15. Banks then joined the fray because of continuing sluggish demand for corporate credit. But this rising trend in AUM is set to reverse with risks manifesting and delinquencies rising, the rating agency said. It is necessary to know the reasons of such NPA and its impact on the industry.

Non-performing assets (NPAs) in affordable housing loans increased during 2016-17, as loans below Rs 200,000 witnessed a significant growth in disbursements and a “moderate” increase in NPA levels, a report by the Reserve Bank of India (RBI) said.

Housing finance companies (HFCs) and public sector banks (PSBs) experienced a slowdown in housing loan disbursements during 2016-17, while the overall NPA levels for the loan segment increased year-on-year.

The report — Affordable Housing in India, in the RBI’s January 2018 Bulletin — said low-income groups and economically weaker sections accounted for 96 per cent of the housing shortage.

Traditionally, property developers, especially in the private sector, catered to the middle-income and high-income customers due to the higher returns on such sales. Low-cost housing projects were ignored, given the low-profit margins.

By 2030, there would be a demand for 38 million affordable housing units, up from 19 million in 2012, as 40 per cent of the population would start living in urban areas, said the RBI report quoting a McKinsey ; Co study.

According to data from the National Housing Board, the apex financial regulator for the housing market, disbursements of loans up to Rs 1 million increased from Rs 309.2 billion in 2014-15 to Rs 429.9 billion in 2016-17; representing a 39 per cent growth. Disbursement of loans in the above-Rs 2.5-million slab increased from Rs 1,167.65 billion in 2014-15 to Rs 1,688.66 billion in 2016-17, which is a 44 per cent growth.

NPA ratios from PSBs, in the Rs 0.2-million slab, decreased minutely, while the NPA levels in the sub-Rs 0.5-million category of housing loans increased from 4.9 per cent in 2015-16 to 5 per cent in 2016-17. NPA ratios for other categories of housing loans distributed by PSBs declined between FY2016 and FY2017.

HFCs, on the other hand, witnessed a rise in NPA levels for the sub-Rs 0.2-million category; increasing from 6.1 per cent in FY2016 to 8.6 per cent in FY18. For the sub-Rs 0.5-million loan slab, the NPA ratios increased by 100 basis points from 2.4 per cent in FY2016.

Overall, housing loans up to Rs 200,000 had the highest NPA levels, and PSBs reported higher NPA levels than HFCs in the past two fiscal years, the RBI’s report stated.

New launches in the top-eight cities declined by 8 per cent during 2016-17, while the number of new affordable housing project launches increased by 10 per cent during the corresponding period, according to a research report by Cushman & Wakefield.

The share of the affordable housing segment — in terms of the number of housing projects launched — increased from 25 per cent in 2015-16 to 30 per cent in 2016-17.

Why banks have huge NPA as compared to hfc’s?
The loans given by the bank is considered as its assets. So if the principle or the interest or both the components of a loan is not being serviced to the lender (bank), then it would be considered as a Non-Performing Asset (NPA).

Any asset which stops giving returns to its investors for a specified period of time is also considered as Non-Performing Asset (NPA).

The specified period of time is 90 days in most of the countries and across the various lending institutions, which is 180 days in Non- Banking Financial Companies and Housing Finance Companies.What can be the possible reasons for NPAs?
Diversification of funds to unrelated business/fraud.

Lapses due to diligence.

Busines losses due to changes in business/regulatory environment.

Lack of morale, particularly after government schemes which had written off loans.

Global, regional or national financial crisis which results in erosion of margins and profits of companies, therefore, stressing their balance sheet which finally results into non-servicing of interest and loan payments. (For example, the 2008 global financial crisis).

The general slowdown of entire economy for example after 2011 there was a slowdown in the Indian economy which resulted in the faster growth of NPAs.

The slowdown in a specific industrial segment, therefore, companies in that area bear the heat and some may become NPAs.

Unplanned expansion of corporate houses during boom period and loan taken at low rates later being serviced at high rates, therefore, resulting into NPAs.

Due to mal-administration by the corporates, for example, willful defaulters.

Due to misgovernance and policy paralysis which hampers the timeline and speed of projects, therefore, loans become NPAs. For example Infrastructure Sector.

Severe competition in any particular market segment. For example Telecom sector in India.

Delay in land acquisition due to social, political, cultural and environmental reasons.

A bad lending practice which is a non-transparent way of giving loans.

Due to natural reasons such as floods, droughts, disease outbreak, earthquakes, tsunami etc.

Cheap import due to dumping leads to business loss of domestic companies. For example Steel sector in India.

What is the impact of NPAs?
Lenders suffer lowering of profit margins.

Stress in banking sector causes less money available to fund other projects, therefore, negative impact on the larger national economy.

Higher interest rates by the banks to maintain the profit margin.

Redirecting funds from the good projects to the bad ones.

As investments got stuck, it may result in it may result in unemployment.

In the case of public sector banks, the bad health of banks means a bad return for a shareholder which means that government of India gets less money as a dividend. Therefore it may impact easy deployment of money for social and infrastructure development and results in social and political cost.

Investors do not get rightful returns.

Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have stressed balance sheet and causes halting of the investment-led development process.

NPAs related cases add more pressure to already pending cases with the judiciary.

.

Summary
The need of the hour to tackle NPAs is some urgent remedial measures. This should include:
Technology and data analytics to identify the early warning signals.

Mechanism to identify the hidden NPAs.

Development of internal skills for credit assessment.

Forensic audits to understand the intent of the borrower.