'Teaser rates are not good for the banking industry'

Anoop Pabby recently took over as managing director of Deutsche Postbank Home Finance Ltd, a fully owned subsidiary of Deutsche Postbank AG, Germany.

Pabby spoke to Atanu Kumar Das about the challenges faced by home finance companies and how profitability is linked to customer satisfaction. Edited excerpts:

What agenda have you set for yourself?

We have been in India for the past six years and have seen the ups and downs. We have invested a lot and now I have to look at the stakeholders' return.

I took over as MD on July 1 and have set some priorities to ensure our penetration increases considerably. It is very important to ensure that the loans we give to customers become user-friendly.

For this, we have asked our credit department to be in touch with customers, rather than sales guys doing this activity. We know that for chartered accountants, it is difficult to sell, so we are training them accordingly and making them multi-skilled.

This, we believe, is going to give confidence to customers. We call it the customer ownership concept.

How has the company performed and what is the target you have set for the coming year?

The portfolio is Rs 4,500 crore and last financial year, we disbursed Rs 1,707 crore loans. We have set a target of Rs 2,500 crore for 2010-11 and expect our profit after tax to increase by 35 per cent.

The asset book has been appreciating at a compunded annual growth rate of 33 per cent for the past five years. PAT has grown at a CAGR of 95 per cent for five years.

In the last financial year, we reported one of the lowest gross non-performing assets in the industry at 0.77 per cent.

What challenges do you face?

A significant one is the asset/liability mismatch and banks should step in to take care of the issue. The National Housing Bank is doing some good work in this domain.

A bigger challenge is competition from bigger banks; they can enter the home finance market any time and reduce the rate of interest, which forces other banks to follow. Another important issue is that prime lending rates are going to be increased soon and that will ensure banking companies raise interest rates by 25-50 basis points.

More, there is a lot of risk of fraud, as there are very few big developers in the country and it is time we have a real estate regulator which can take care of this issue. Another important thing which should be done is digitising title records in the industry.

What are your views on teaser rates? How much of your business comes from this?

We are not in support of teaser rates as it gives a wrong signal to the customer.

Normally, a customer needs about 15 months to settle down while paying back loans but in case of teaser rates, the burden is almost zero for the first two years, after which he/she has to suddenly pay a significant amount.

Most customers are not ready for that.

The default rate in this category is also quite high. We are forced to introduce teaser rates because of the competition, but we do not encourage our sales people to promote these.

In terms of teaser rates contributing to our revenue, it will be less than five per cent.

Teaser rates are not good for the industry as a whole.

How much revenue comes through cooperation with real estate developers?

Half our revenue comes from the builder cooperation model and we tie up with almost all big developers in prime cities and work with them.

But in the past couple of years, we have also started tying up with small developers who are professionally managed. Today, 20-25 per cent of our revenue comes from small developers.