Piramal Enterprises cuts exposure to realtors, raises home finance share

Piramal Enterprises (PE) has been one of the most aggressive lenders to real estate in recent years.

Now, however, it is reducing the lending to property developers, while raising the share to housing finance. This is part of a plan to de-risk its lending book.

Piramal Capital & Housing Finance, the finance arm of PE, disbursed Rs 6,200 crore in the December quarter. Of this, it lent Rs 3,900 crore to developers, against an earlier quarterly average of about Rs 4,500 crore. And, doubled the disbursal to housing finance, says Khushru Jijina, managing director at Piramal Capital.

It disbursed Rs 1,700 crore as home loans in the quarter, against a normal disbursement of around Rs 850 crore. “In fact, our housing finance was the biggest gainer in the past quarter because many NBFCs (non-bank finance corporations) had stopped providing housing loans. The balance amount of Rs 1,000 crore was disbursed through our corporate finance group, which lends to sectors other than real estate,” Jijina said.

He added they’d bought a home loan portfolio of Rs 500 crore from another lender, which he refused to name.

Piramal Capital & Housing Finance had a loan book of Rs 55,255 crore as on end-December. It has already said housing finance will become a tenth of this total by end-March. The company also plans to bring down the share of real estate in its books from about 73 per cent to 50 per cent in the next two years.

“Since we are increasing the share of home loans, which has a lower RoE (return on investment), we are down-selling the LRD (lease rent discounting) loans, which also have lower RoE, to banks,” explained Jijina.

Given the market uncertainty and the likelihood of this continuing until the coming general election, Jijina says they believe it is prudent to preserve liquidity, while earning an appropriate risk-adjusted return through an increase in its targeted gross return for the disbursements during this period.

“Even as our underwriting on real estate becomes more selective, albeit temporarily, we believe we will still grow the overall lending book by 20-25 per cent, through a combination of non-real estate and retail loans,” he said.

Most NBFCs have increased their lending rates to 18-19 per cent, a rise of 200-300 basis points (bps), after the liquidity crunch they faced post the IL&FS default issue.

Jijina contends his company did not increase rates unnecessarily. “While we would not like to comment on what others have done, we have seen rates increase by approximately 125 bps, corresponding to an approximately 75 bps increase in the cost of funds,” he said.

The number game

  1. Piramal lent Rs 3,900 cr to developers as against Rs ,4500 cr it does normally
  2. It doubled lending in housing finance to Rs 1,700 crore in Q3 of FY19
  3. It has bought home finance portfolio of Rs 500 crore from another lender
  4. Piramal already said home finance would become 10% of its books by March 
  5. Piramal Capital had a loan book of Rs 55,255 crore as of December 2018

Source: Piramal Capital & Housing Finance

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