Atul Monga, Chief Executive Officer of BASIC home loan In an exclusive conversation with ET. Edited excerpt:
With interest rates tightening, what kind of impact do you see on the affordable housing segment and
Even on the overall housing market?
With rising inflation in the country, interest rate increase was inevitable. In fact, most home loan borrowers in the last quarter of FY12 were well aware that these low rates would not last long. Since the affordable housing segment is most vulnerable to interest rate fluctuations and is dependent on EMIs, the impact in this segment will be somewhat higher. Rising rates will certainly deter some home buyers from buying a new home, while many others may see this as an opportunity to buy it before rates rise further.
Even after the recent hike, home loan rates are still below pre-pandemic levels. Therefore, in the medium to long term, demand will again bounce back strongly.
The Reserve Bank of India (RBI) is tightening the rules for fintech companies. As a Lending Distributor, do you face any regional challenges?
The recent RBI regulations to regulate BNPL players are more focused on payments businesses. This should not have much impact on the home loan market. On the other hand, RBI has been quite quick in increasing home loan penetration in India and came out with a circular in October last year to rationalize the risk weighting on housing loans by adding it to LTC (loan-to-cost ratio) for sanctioned loans. had come. by March 2022.
This was a welcome move as it facilitated higher credit flow for individuals. In April 2022, RBI has proposed to extend it for one more year. This actually takes the pressure off the balance sheets of lenders and allows them to lend more easily to home loan buyers.
It looks like the funding winter has come to an end, with some startups already laying off their workforce. You are a Series A funded venture, how has been your experience working with investors?
Investors have become much more cautious and are factoring the profitability of startups into their thesis for investment. They talk a lot in their talk about profitability, how unit economics will work for enterprise in the growth journey. They are keen on companies that are solving real social problems, consistently using technology, and ensuring profitability is at the core of their business model.
In such a scenario, what is your priority – profitability over growth or vice versa?
We believe that as a startup, both are important and one cannot build a business strategy based solely on the funding environment. We, as a company, have always been cost conscious since our inception and have always worked towards maintaining positive unit economics. We have raised around $4 million so far and even after 2 years of existence our cumulative burn to date is around $1 million.
In fact, most of our burn is in capex to increase capacity for new businesses and future growth. Our core business is already profitable. We believe this is an opportunity when other players in the market are now working on their profits. We are looking to expand till March 2023 and become the largest distributor of mortgages everywhere in India.
In which areas have you been able to automate the home loan process for consumers? And with the economy still struggling, are you afraid of rising crime?
Our Product Eligibility Matrix (PEM), a customer-bank product matchmaking engine, recommends banks based on both customer profile and asset profile, a first for the industry. The digital engine minimizes financial and time losses for customers who would otherwise have to suffer due to processing fees paid to wrong lenders.
Likewise, our document rules engine ensures that there is correct documentation for first time logins, ensuring faster turnaround times and less operational hassle. We have also automated an end-to-end backend process for consultants, which allows efficient customer KYC and document verification using technology.
As far as defaults are concerned, what we have observed is that our target customer is very debt conscious, and makes timely payments. Although we have a small portfolio of home loans in the industry and are primarily focused on affordable housing, we have observed that homes are the biggest lifelong asset of low and middle income households, and their financial discipline is far greater than those Those who have more disposable income on hand.
How do you see the basic home loan growth going forward? Will it continue to be an intermediary or is it looking to expand its portfolio?
When we started we had two options either to start as a lender or as a tech platform/intermediary. We decided on the latter because as a lender we had limited upside to expand, but the huge downside that could impact our balance sheet as well, so we decided to remain a technology platform.
Now after two years, we are doing close to Rs 300 crore monthly disbursement and target to do Rs 1,000 crore by March 2023. We have already started several business lines in terms of sourcing which are direct online, influential and even builder tie-ups. To fulfill our goal of becoming the home ownership support company for our customers, we are working on more business verticals that complement our business.