Impact of RBI regulation change: CEO of LIC Housing Finance warns against taking on project loans due to high risk

The home financing company's MD and CEO, Tribhuwan Adhikari, said that in three to four years, it would want to see an increase in its affordable housing book from the current 10-12% to about 20–25%.

In FY24, the company's project financing portfolio decreased by 5% year over year. From Rs 2697 crore in FY23 to Rs 2560 crore now, the whole portfolio decreased.

The biggest home finance company (HFC), LIC home Finance, would take a cautious approach to project loans since they are seen as a high-risk category after the recent Reserve Bank of India (RBI) adjustment in laws on provisions. said Chief Executive Officer and Managing Director Tribhuwan Adhikari.

We shall exercise caution and vigilance due to our unsatisfactory track record in granting project loans for a certain duration. Adhikari said this at a news conference in Mumbai on May 16: "We are concerned because it has a high risk aspect.

In FY24, the company's project financing portfolio had a year-over-year (YoY) decline of 5%. The whole portfolio decreased from Rs 2,697 crore in FY23 to Rs 2,560 crore in the same year.

The CEO and MD's remarks are quite important since the draft guidelines were issued by the RBI on May 3.

According to the standards, lenders must put aside 5% of the loan amount while a project is still in the building period. When a project is operating, this will drop to 2.5 percent.

Adhikari responded as follows: "This is a regulatory guideline that we have to follow, but I would go into it if that there are opportunities in construction as well as project finance with higher provisioning."

Give attention to affordable housing

Adhikari said that in three to four years, the HFC hoped to increase the percentage of its affordable housing book from the current 10 to 12 percent to about 20 to 25 percent.

The business intends to concentrate more on the market for inexpensive homes. We are now shifting our focus to more cheap financing since we believe there are many advantages to it. We have made several organizational structure modifications and will undoubtedly expand into tier-3 cities. In these places, we intended to build fifty regional offices. Therefore, we have opened 46 of the 50 offices that were anticipated in these tier-3 towns, according to Adhikari.

Remedial actions regarding the RBI penalty

LIC Housing Finance was fined Rs 49.7 lakh by the RBI on April 6 for violating many Fair Practices Code rules.

The RBI said that in loan application forms and approval letters, LIC HF had concealed the interest rate, the risk grading system, and the justification for applying varying interest rates to various borrower groups.

According to Adhikari, the business has begun making these corrections.

"In 2021–2022, we assessed an excess interest rate of approximately Rs 1.26 crore to a borrower." We have already begun repaying and have given back around Rs 90 lakh. Since the account is old, we are attempting to get in touch with the borrower. We are compensating a different client for a comparable additional interest that was assessed in 2022–2023 as a preventative step.

Q4FY24 figures

LIC Housing Finance reported a 7.5 percent decrease in net profit to Rs 1,091 crore in the last quarter of FY24, as opposed to Rs 1,180 crore in the same period the previous year. A one-time expenditure was the cause of the decrease in net profit.

The HFC's net interest income (NII) increased to Rs 2,237 crore, a 12 percent increase. In order to comply with board requirements, the business put aside Rs 100 crore for potential credit losses and suffered an extra tax charge of Rs 127 crore linked to deferred tax obligations from prior years.

"In FY24, disbursements have been minimal.  It increased by 15% in Q4, and we anticipate double-digit growth in FY25," he said.