00:00 This is Mimansa Verma and today we have Mr. Mahesh Mishra, the CEO and Managing Director
00:06 of India Mortgage Guarantee Corporation joining us with us here.
00:12 Sir, my first question with you is just to understand that how IMGC plays a role in the
00:19 Indian mortgage ecosystem.
00:24 So we were started as a public-private partnership way back in 2014.
00:30 Our primary role is to expand the mortgage universe by allowing lenders to take more
00:37 risk.
00:38 We end up taking first loss on the loan and it is usually 20% but that is more because
00:46 of 20% being the pricing sweet spot.
00:49 So what happens is that most lenders have a defined risk box within which they operate
00:55 and post that they use us to work on riskier segments, riskier profiles, deeper geographies
01:03 and so on.
01:04 In case there is a default on the loan, then we end up paying EMIs on the borrower's behalf
01:11 and 20% is usually adequate to cover two years worth of EMIs which allows the lender to foreclose
01:21 the property, follow surface fee or in certain cases even regularize the loan.
01:29 During the sale process, in case they have a loss, then we take the first loss guarantee
01:34 up to 20%.
01:35 So what we do is we help lenders take greater risk and onboard customers that they would
01:42 not ordinarily onboard, thereby providing impetus to the overall housing ecosystem.
01:49 We have guaranteed over 20,000 crores in the last six, seven years of our operation.
01:56 We work with nearly 23 lender partners and the last three, four years in particular have
02:01 been pretty significant for us in terms of growth.
02:05 In 2018-19 we had guaranteed just 5000 crores, now it's up to 20,000 and we expect to grow
02:11 over 50% this year and next year.
02:15 Okay, so because IMGC is the loan, the only such mortgage company in India, so what have
02:23 been your takeaways from other countries' experiences and what are the lessons that
02:28 IMGC has learned from other countries?
02:31 So we have technical partners in the form of Enact, who are a large American mortgage
02:39 insurer.
02:40 They used to be called Genworth earlier.
02:43 They have enormous experience across markets from the US to Mexico to Australia to European
02:50 markets and so on.
02:52 So we have been continuously seeking technical support from our technical partners since
02:58 inception.
02:59 This is incorporated into our risk philosophy, into our pricing models, into our segmentation.
03:06 So we have really benefited from our technical partners.
03:10 Last year, one of Canada's largest mortgage insurers, Sejian, have taken a fairly significant
03:17 stake in IMGC.
03:18 Sejian is backed by the private equity player, Brookfield.
03:22 So now we actually have the expertise of two mortgage insurers helping us with their experiences
03:27 to evolve our product and pricing methodology.
03:31 Okay.
03:32 So recently you also announced a credit score for new customers, new credit customers.
03:39 So what is the progress on that?
03:42 Currently it is around 30,000 crore maybe.
03:47 If you could just confirm the number and give us a sense on what is the progress there.
03:51 Yeah, so I'll take a step back and kind of explain to you on what we mean.
03:58 We allow, or rather the main value addition we do is in three forms.
04:03 One is risk transfer, second is consistency of underwriting, and third is on the ECL benefits
04:09 that lenders get.
04:10 Now on consistency, what we mean is once there is a defined product program that is with
04:16 IMGC, then from the lenders end there is no regional biases or individual underwriter
04:23 level judgmental calls that impact the final decision.
04:27 So that is how we bring in consistency.
04:30 In the mortgage industry or in the affordable housing space, a large part of people are
04:36 credit untested.
04:37 So one of the value adds that we plan to bring is a score for the untested customers.
04:44 We have already developed it for the salary segment.
04:47 We are already piloting it with internal lenders, but this will be one of the many tools that
04:51 we will be using to provide a more consistent and seamless underwriting experience.
04:58 It was in a testing phase, right?
05:00 So when are you planning to launch?
05:02 In score, we have already guaranteed 100,000 borrowers.
05:07 We have helped 100,000 people move into their homes.
05:09 We've guaranteed 20,000 crores.
05:11 That gives us a fair amount of data to kind of design and develop a score.
05:16 So we are ready with a score, but my experience has been that one has to be careful before
05:22 one launches it commercially.
05:24 So I would say we're at least two, three years away from that.
05:28 However, we are able to buy, by virtue of having access to data of nearly 23 lenders,
05:35 we are anyway able to build a lot of portfolio insights into our entire underwriting methodology.
05:44 Because we on one hand deal with affordable housing players, the ticket size of 7 to 12
05:48 lakhs.
05:49 On the other hand, we deal with large lenders like LIC Housing and SBI, who operate in higher
05:54 ticket sizes.
05:55 So our portfolio range is not just across ticket sizes.
05:59 It is also across various lender types.
06:02 So that gives us a lot of data and insights to make the overall underwriting experience
06:09 a lot richer.
06:12 So if you could give a sense on how will the IMGC's expansion and increased guarantees
06:18 impact the Indian housing market?
06:21 So if you look at the Indian housing market over the last three, four years, there have
06:26 been a couple of trends that stand out.
06:29 One is that the larger players have grown larger.
06:33 If you look at the top five players, they now comprise 65% of the housing industry.
06:39 What that has done is that it has increased the growth rates in the greater than 30 lakhs
06:45 segment and the growth rate in the lesser than 30 lakhs segment has been slightly slower.
06:53 So if you look at last year's originations, for example, nearly 65% of originations were
06:58 in the greater than 30 lakhs segment.
07:01 And therefore, the lesser than 30 lakhs segment is not growing at the same pace for two or
07:06 three reasons.
07:07 One, larger players like to operate in the prime segments because they are less risky.
07:14 And also the underwriting expense per unit does not always justify it.
07:21 Somebody like us will actually help them solve for both because the greater risk will be
07:26 absorbed by us as a third party shock absorber and the underwriting consistency will also
07:31 be brought about by us so that they can devote less time in unit economics.
07:36 So from our perspective, the way we would wish to drive the growth in the mortgage ecosystem
07:44 is by allowing affordable housing to grow.
07:48 We were started as a public-private partnership with NHB, the World Bank through IFC and ADB
07:54 as shareholders along with Genworth as the technical partner.
07:58 So we have a certain obligation to the overall social cause of promoting affordable housing.
08:04 And in many ways, we are taking a step in that direction.
08:08 Our average ticket size today is 19 lakhs, down from 26 lakhs four years ago.
08:13 So our growth will also come by allowing more people to expand more confidently in the lower
08:19 ticket sizes.
08:20 Because if you again look at the Indian mortgage to GDP ratio, which is seen as a benchmark
08:28 for the sophistication of your housing finance markets, then India has been hovering in the
08:33 10.5 to 11.5% for a while.
08:36 Comparable Asian economies are in the early 20s and developed economies are in the low
08:42 60s.
08:43 So for India's mortgage to GDP ratio to grow, it has to happen with greater access to housing
08:50 finance for a broader segment of the population.
08:57 So because you deal with a lot of housing finance companies, so just if you could put
09:02 some color on how the mortgage product will help housing finance companies to reduce their
09:10 underlying risk and improve their credit box.
09:13 So if you could just give some insight on that.
09:16 Yes, so we customize our products depending on what a housing finance company or a bank
09:23 wishes to do.
09:24 We work with both segments.
09:26 Currently among the housing finance companies, LIC Housing is our largest lender partner.
09:32 And then we work with several other mid to large size housing finance companies.
09:37 We also have fairly active partnerships with SBI as well as Axis Bank and so on.
09:42 So we work with both banks as well as housing finance companies.
09:46 Our products are customized based on what a housing finance company wants to do.
09:51 In certain cases, we allow them to take people with a higher debt burden.
09:59 They would have a standard debt burden that they would max out and for someone having
10:02 a higher debt burden, we would support them with the guarantees.
10:05 In certain cases, it is about the borrower's age or the residual tenor after retirement.
10:12 In certain cases, it is just to do with loan tenor.
10:14 For instance, many institutions give you loans greater than 25 lakhs only if you work for
10:21 certain set of corporate.
10:22 However, with a guarantee, they could expand their basket of employers where they could
10:27 give people higher loan amounts.
10:31 The primary focus is on improving affordability.
10:35 Second benefit that we provide is with index coming in.
10:40 Current credit losses can be defined through a board approved policy as long as certain
10:47 other regulatory guardrails are maintained.
10:50 If you look at the guaranteed portion of the loan that we guarantee and our guarantee being
10:57 an unconditional irrevocable guarantee, it allows housing finance companies to take a
11:01 much lower ECL on the guaranteed portfolio which in turn benefits their P&L.
11:08 So we provide a risk transfer benefit, we provide a consistent underwriting benefit
11:13 and we provide a ECL benefit to housing finance companies.
11:18 Okay.
11:19 So because tomorrow is monetary policy, so just wanted to understand how the rate hike
11:25 is going to impact housing finances and the housing sector going ahead.
11:31 So last year there was a rate hike multiple times and I think that did impact the lower
11:38 segments of borrowers for two reasons.
11:42 One is they are very dependent on a loan in order to buy their house.
11:47 Second is with increased interest rates, their affordability went down because the loan eligibility
11:53 went down.
11:54 So there has been an impact in the lower segment of the industry, I would say more than 2 years
12:00 back than last year, but there has been an impact.
12:03 So I don't want to guess what the monetary policy will lead to tomorrow, but in case
12:11 there are further hikes, then the lower segment will continue to get impacted.
12:16 If you analyze the housing finance books over the last several years, then last year there
12:21 has been one trend which is fairly refreshing, which is last year overall disbursals were
12:27 9 lakh crores and the book also grew by 6 lakh crores, which is nearly 72% of book growth
12:33 came from last year's originations.
12:35 In the past this number used to be between 45-50% which indicated, at least in the last
12:40 3-4 years, which indicated that a lot of disbursals were actually refinances driven by large lenders
12:49 who had significant pricing advantage.
12:53 Now it appears that most of the disbursals are being driven by fresh disbursals.
12:59 As of now, largely in the greater than 30 lakh category, but I am certain more than
13:04 monetary policy, there will be a revamp of the current PMAY and the subsidy schemes which
13:10 will drive some of the growth in the lower end.
13:14 Secondly, 40% of housing finance is driven by public sector lenders.
13:19 As of now, public sector lenders are predominantly focused on premium housing.
13:25 Once they shift focus to affordable housing in line with the overarching financial inclusion
13:31 objectives, then I am certain we will see greater growth.
13:36 Monetary policy rate hikes have impacted the lower end.
13:40 Further hikes could impact it sharply, though it's anyone's guess on what direction, I don't
13:44 want to guess what direction it will take tomorrow, but the last 2 years have certainly
13:49 seen an impact in the lower end.
13:53 That's all from us, Mr. Mahesh.
13:55 Thank you for taking your time to join us for this session.
14:00 Thank you so much.
14:01 It was a pleasure.
14:02 Thank you.
14:02 [Music]
14:09 [End of session]
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