LIC Housing Finance banks on parent for revival

MUMBAI: LIC Housing Finance, the mortgage lender battered by corruption over a year ago, is leaning on its parent's ubiquitous 15 lakh agents and chasing middle-class customers sacrificing profitability, as it attempts to revive growth and erase the blot.

The second-biggest mortgage lender has slammed the doors on brokers, formed a risk-management team for the first time since beginning in 1989, and invested in technology to avoid a recurrence of events that shaved off more than a third of its market value within days of the arrest of its executives on corruption charges.

Investors who dumped LIC Housing shares after the arrest of its former chief executive in November 2010, are flocking back and have made it to outperform bigger rival Housing Development Finance Corporation and the benchmark indices last year.

Foreign investors now hold 49% of the company, up from 40% in December 2010. "We will primarily be with the end-user, typical middle class," says VK Sharma, chief executive at LIC Housing Finance. "That is why even in this high interest rate regime, we have not felt the stress. Margin on retail is less, so my net interest margin will come down."

LIC Housing's chief executive Ramachandran R Nair and seven bank and brokerage officials were arrested in November 2010 by the Central Bureau of Investigation for allegedly taking bribes and giving away improper loans. The lender slowed disbursals and top officials travelled to branches across the nation to lift staff morale and win back customers.

"The pedigree of the company remains that it is an LIC company," said Vibhav Agarwal, analyst at Angel Broking. "It enjoys the trust factor of LIC. People have forgotten that event."

Source: EconomicTimes