Muthoot Group to foray in home loan segment, drops banking plans

Muthoot Pappachan Group, a Kerala based finance group is planning to enter the housing finance business in the country by setting up a separate subsidiary in the next fiscal. Earlier group was to apply for a banking license but it has dropped its plan.

In its subsidiary, Muthoot Housing Finance Limited, group is planning to invest around Rs 100 crore over the next two years. The subsidiary will be a wholly –owned subsidiary of Muthoot Fin Corp.

In the beginning the new entity will target the affordable housing segment and will be disbursing small-ticket loans up to six lakh

Initially 25 branches of Muthoot Housing Finance will be opened in the suburbs of major metros like Mumbai and Chennai, the Group’s Chairman and Managing Director, John Muthoot informed.

Muthoot told media over phone, "Setting up a housing finance company is part of the group's strategy to take our operations into the next level. This would also hugely benefit the lower income segment to secure a home loan without much hassle."

Muthoot told it dropped the plan of entering into banking because it wants to assist the group’s smooth entry into the home-finance segment and also to increase its non-banking finance operations. At present group’s annual turnover is Rs 20,000 crore and a customer base of over 10-lakh.

Muthoot said, "At first we thought of doing that (applying for banking license). But, later decided not to apply for the banking license as we felt that there is a lot of untapped potential in the NBFC business."

After the budget announcement the RBI will be considering giving banking licenses to corporates and NBFCs, Muthoot Group had expressed its intention to apply for the bank license like other players such as Reliance Capital and Bajaj Finserv amongst others.

Muthoot will be approaching the National Housing Bank for necessary approval to set up the new company. The group is hoping to start lending operations by the third quarter of next financial year.

"The idea is not to compete with large players in the segment but to tap the opportunity in the middle-class segment, which is yet to be explored fully. We are looking at customers, who have a monthly income in the range of Rs 6,000-Rs 12,000, with an average ticket-size of Rs 2.5 lakh-Rs 6-lakh ," Muthoot said.

At present larger players in home segment like HDFC and SBI are offering cheaper home loans (teaser), under which they are offering loans at a fixed rate as low as 8-8.25 per cent to woo small home buyers and entry of local players like Muthoot, is likely to intensify the prevailing competition in the small loan segment. Muthoot group started in 1939, is running two NBFCs, Muthoot FinCorp and Muthoot Capital Services Limited, is having a good hold in the southern cities of the country.

At present the group is offering services in brokerage, auto, gold and mortgage finance, Hospitality and infrastructure. Muthoot Fincorp is having over 360 branches and offers products and services like gold, and auto loans, money transfer and investment solutions.

MCSL is offering capital market solutions including leasing and hire purchase, vehicle Loans, bonds and deposits.