Atul Monga, chief executive of Basic Home Loan in an exclusive chat with ET. Edited Excerpts:
With interest rates hardening, what kind of impact do you see on the affordable housing segment and
also on the overall housing market?
With rising inflation in the country, interest rate hike was inevitable. In fact, most of the people availing home loans in the last quarter of FY22, were well aware that these low rates will not stay for long. As the affordable housing segment is most vulnerable to fluctuations in interest rates and are EMI dependent, the impact would be somewhat highest in this segment. Rising rates surely will deter some home buyers from purchasing new homes, while many others may see it as an opportunity to purchase before rates rise even further.
Even after the recent hike, the home loan rates still stay below pre-pandemic levels. So in the medium to long run, demand will again bounce back strongly.
The Reserve Bank of India (RBI) is tightening regulations for fintech companies. As a lending distributor, do you see any sectoral challenges?
The recent RBI regulations are more focused on payments businesses for regulating BNPL players. It should not have too much impact on the home loan market. On the other hand RBI is quite bullish in increasing the home loans penetration in India and in October last year came up with a circular to rationalize the risk weights on housing loans by linking them with LTC (Loan-to-Cost ratios) for loans sanctioned up to March 2022.
This was a welcome move as it facilitated higher credit flows for individuals. In April 2022, RBI has proposed to extend this for one more year. This actually releases pressure from lenders’ balance sheets and allows them to lend easily and higher to home loan buyers.
It looks like the funding winter has descended, already some startups have scaled down and also let go of their staff. You are a Series A funded venture, what has been your experience dealing with investors?
The investors have become a lot more cautious and are factoring profitability of the startups in their thesis for investments. They talk a lot about profitability in their conversations, how unit economics will work for the venture in the growth journey. They look keen on companies who are solving real societal problems, using technology sustainably, and ensuring profitability is at the core of their business model.
In such a scenario, what’s your preference – profitability over growth or vice versa?
We believe as a startup, both are important and one cannot build a business strategy just based 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 about $4 million to date and our cumulative burn till date even after 2 years of existence 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 market players are now working on their profitability. We are hiring everywhere to expand and be the largest distributor of mortgages in India by March 2023.
In what areas have you been able to automate the home loan process for consumers? And with the economy still struggling, do you fear rising delinquencies?
Our Product Eligibility Matrix (PEM), a customer-bank product matchmaking engine, recommends banks based on both customer profile and property profile, a first for the industry. The digital engine reduces financial and time loss for customers who otherwise have to suffer because of processing fees paid to wrong lenders.
Similarly, our Document Rule Engine ensures there is right documentation for login, the first time, which ensures faster turnaround times and less operational hassle. We have also automated an end-to-end backend process for advisors, that allows efficient customer KYC and document verification using technology.
As far as delinquencies are concerned, what we have observed is that our target customer is very credit conscious, and pays on time. Though we have a small portfolio of home loans in the industry and majorly focused around affordable housing, we have observed that home is the biggest lifetime asset of the low and middle-income families, and their financial discipline is far higher then those who have more disposable income in hand.
How do you see Basic Home Loans going forward? Will it continue to be an intermediary or look 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 huge downside which can even impact our balance sheet, so we decided to remain a tech platform.
Now after two years, we are doing close to Rs 300 cr of monthly disbursements and aiming to do Rs 1,000 cr by March 2023. We have already started multiple business lines in terms of sourcing which ranges from direct online, influencers and even builder tie-ups. We are working on more business verticals which are complementary to our business, to fulfil our aim to be a home ownership support company for our customers.