Trends in Retail Housing Loans - HFC’s Perspective

1. Trends in Retail Housing Loans - HFC’s Perspective Presented by: Anil Sachidanand (CEO - DHFL) NHB – CEO’s Meet 17th March’10

2. AS per vision 2020 “housing for All” 100 million housing units would be required - Demand outcasts Supply High Demand growth driven by: • Improved affordability • Increasing urbanization • Favorable demographics • Increasing economic activity • Increase in supply of affordable homes • Price correction in residential real estate market Housing Finance penetration is still low in Tier-2, Tier -3 cities. Need more HFC’s, RRB’s, Banks with focus on housing finance. NHB – CEO’s Meet 17th March’10

3. Level Playing Field for HFC’s • Two fold regulatory structure – On occasions results in duality of rules • Convergence on differences with aspect to : • Taxation treatment • Capital adequacy • Liquidity requirements • Deposit insurance • Disclosure requirements NHB – CEO’s Meet 17th March’10

4. Lending Practices • Lower Income segment is still “untouchable” by many of the players – Need for bringing in Financial Inclusion • More support required for developer financing in affordable housing segment. • Lack of standardization in the lending process by various banks & HFC’s • Increasing proportion of other loans in HFC’s credit portfolio due to intense competition on yields from banks NHB – CEO’s Meet 17th March’10

5. Other Parameters Rate of Interest • Introduction of 8% Home loans bought in interesting dimensions into the Indian Mortgage Finance Market in the recent past • Broadening the market base – need for an independent floating rate benchmark Prepayment Charges • Prepayments to be correlated with interest rates • We still lack a well developed model to accurately forecast mortgage prepayments • Customer’s lingering debt averse attitude play a more crucial role in prepayment patterns NHB – CEO’s Meet 17th March’10

6. Customer Service • Emerging as one of the key areas in competition to win over customers • HFC’s have been upgrading their technology and investing in sophisticated systems for sourcing and processing and managing information pertaining to home loan customers • On the service front the housing finance Company’s have begun addressing concerns of borrowings through counseling and legal advisory services on matters pertaining to property’s title, technical evaluation, pricing etc. • As the scope for product differentiation is increasingly getting limited, HFC’s will increasingly compete on the strength of their service quality NHB – CEO’s Meet 17th March’10

7. Together GOI- RBI-NHB-HFC’s need to work towards overcoming the challenges and constraints • Lack of Uniformity of norms and variation in standards amongst industry players : Imposes systematic risks, which can be a potential threat • Aggressive approach may lead to defaults and downward revision of interest rates - may lead to erosion of profitability in the long run • Industry Fragmentation: Major impediment for its growth • Conflicting Interests: Both banks & HFC’s competing with each other for the same housing pie but functioning and lending practices seem to bear no similarity • ALM: Asset liability mismatch one of the biggest risks confronted by HFC’s • Non availability of central registry for housing mortgages NHB – CEO’s Meet 17th March’10

8. What needs to be done? • Encourage / initiate small savings which can serve future housing needs thru Banks or HFC’s? • Incentivize developers and HFC’s supporting affordable housing • Standardize origination intermediaries through licensing etc and strong punitive measures for fraudulent intermediaries • Start to implement Electronic format for property registrations across the country • Develop products for seasonal income earners and aligning them with standard NPA norms • Need for a mortgage guarantee company • FDI Constraints: ECB / FDI Route to be opened for HFC’s • Development of capital market by promoting securitization in India NHB – CEO’s Meet 17th March’10

9. DHFL: Way forward • A leading player with over 25 years of expertise in the LMI segment of the Housing Finance Industry • Consolidated loan book stands at Rs.83.30 billion (Dec’09) with an average ticket size of apprx. Rs.5 lac • Pan – India captive distribution network covering 194 locations Way ahead: • Continued focus on LMI segment • Increase penetration in tier-2 and tier-3 locations through Public Private Partnerships • Supporting affordable housing initiatives. Providing technical and marketing advisory solutions to small size developers NHB – CEO’s Meet 17th March’10