GIC Housing Finance Ltd Management Discussions

OVERVIEW OF THE INDIAN ECONOMY

In this turbulent global economic environment, India has experienced macroeconomic and financial stability with a steady pick-up in the momentum of growth. This reflects a sound macroeconomic policy environment and the innate resilience of the economy which fortified it against recurring global shocks. India has remained among the fastest growing major economies of the world, contributing more than 12 per cent to global growth on average during the last five years. Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose.

The global economy is losing steam, with growth slowing in some of the most resilient economies and high frequency indicators pointing to further levelling in the period ahead. In India, real GDP growth was at a six-quarter high in Q3:2023-24, powered by strong momentum, robust indirect taxes, and lower subsidies. The high visibility of structural demand and healthier corporate and bank balance sheets will likely be the galvanising forces for growth going forward. The COVID-led economic disruptions added extremely high volatility in macro financial data, necessitating revisiting of the seasonal adjustment approach.

The Indian economy was among the fastest-growing in the world prior to onset of the Covid-19 pandemic. In the years leading up to the global health crisis, the countrys economic indicators posted gradual improvements. The twin deficits, namely current account and fiscal deficits, narrowed, while the growth-inflation mix showed a positive and sustainable trend. Despite geopolitical instability, India continues to maintain its position as one of the fastest-growing economies globally. This can be attributed to various factors such as demographic advantage, robust domestic demand, economic reforms, manufacturing and infrastructure development, technological advancements, and digital push. In fact, the International Monetary Fund (IMF), in its October 2023 economic outlook update, revised its India economic growth forecast in real terms for 2024 to 6.3% from previous 6.1% estimate in July 2023, citing momentum from stronger-than-expected growth in the fourth quarter of fiscal 2023 as a result of stronger domestic investment. (Source: RBI Bulletin-March 2024)

INDIAN ECONOMY FUTURE OUTLOOK

Resilient growth and rapid disinflation point toward favorable supply developments, including the fading of energy price shocks, and a striking rebound in labour supply supported by strong immigration in many advanced economies. Monetary policy actions have helped anchor inflation expectations even if its transmission may have been more muted, as fixed-rate mortgages became more prevalent.

Despite these welcome developments, numerous challenges remain, and decisive actions are needed.

Indias economic growth is projected to remain strong at 6.8% in 2024-25 and 6.5% in 2025-26, according to the International Monetary Funds (IMF) World Economic Outlook for April 2024.

The "robustness" of the Indian economy reflects "continuing strength in domestic demand and a rising working-age population, says the Washington, D.C.-based global financial agency. The upgrade in GDP forecast for FY25 comes amid a series of recent positive commentaries about Indias economy by global financial institutions like ADB, World Bank, Morgan Stanley, and S&P. They have estimated that India would register a GDP growth rate between 6.6% - 7% in FY25. Growth in emerging and developing Asia is expected to fall from an estimated 5.6% in 2023 to 5.2% in 2024 and 4.9% in 2025, a slight upward revision compared with the January 2024 WEO update of the IMF.

After a robust 7.3% growth this fiscal, we project a moderation to 6.4% next fiscal, largely due to cyclical factors. This year, global growth is expected to slow and the impact of the Reserve Bank of Indias (RBI) rate hikes on domestic demand will play out.

In India, the inflation print of 5.7% in December 2023 was driven solely by volatile vegetable prices and stubborn foodgrain inflation. However, it will keep the RBI cautious on the rate front as it eyes the 4% target. The continued softening of core inflation and the deflation in fuel prices bring only two cheers. Given food has a substantial weight in the Consumer Price Index (CPI) basket, the persistence of high inflation in this category keeps the risk of its transmission to non-food components alive. The Indian economy is expected to grow at an average rate of 6.7% per annum until the end of this decade, i.e., between fiscals

2024 and 2031, a notch above the pre-pandemic decadal average of 6.6%. The key contributor to this trend will be capital, reveals our growth accounting exercise. This is a result of the investment-driven strategy of the government to deal with the scarring from the pandemic. The next seven fiscals will see the Indian economy crossing the $5 trillion mark and inching closer to $7 trillion

Fiscal 2025 will see growth moderating.

After a better-than-expected 7.6% this fiscal, Indias real GDP growth will likely moderate to 6.8% in fiscal 2025. The transmission of the rate hikes effected by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) between May 2022 and February 2023 still continues and is likely to weigh on demand next fiscal. On the other hand, regulatory actions to tame unsecured lending will have a bearing on credit growth. Net-net, amid the interplay of these factors, India will retain its position as the fastest growing large economy. A projected average expansion of 6.7% in this period will make India the third-largest economy in the world and lift per capita income to the upper middle-income category by 2031. Source: (CRISIL India outlook 2024 Report; India economy, Capital as growth Driver and Fortune India, India GDP forecast for FY 25).

HOUSING FINANCE INDUSTRY OVERVIEW

An increase in earning potential, a need for a better standard of living and the growing base of aspirational consumers and their lifestyle changes have led to substantial growth in the housing sector.

With suited economic growth, the premium housing segment will also witness higher demand in the years to come. Reforms in stamp duty, the introduction of affordable rental housing complexes and government-aided schemes will boost this asset class while providing relief to the many who do not have access to it. The real estate sector is going to continue on its journey of long term growth as we see a continuous rise in GDP per capita, larger disposable incomes, growing urbanization.The increase in cost of borrowing will have a direct impact on home buyers, leading to higher EMIs and decreased affordability.

Demand for housing is directly proportional to income and the affordability of homes. Changing lifestyles and labor mobility towards metro cities have increased the demand for housing loans. The major factor that is contributing to the gained traction in the industry is increased urbanisation or quasi-urbanisation. NBFCs play an important role in housing finance in India, providing financing to both individual borrowers and developers. The Indian housing market is expected to grow positively in the coming years, thereby opening avenues for expansion and growth for the housing finance companies.

In terms of development and maturity, the Indian financial sector has recently exhibited an encouraging trend. The amount of outstanding mortgage loans has increased by a healthy 16% over the past 5 fiscal years. Rising disposable income, strong demand, and an increase in new competitors joining the market have been the main drivers of this trend. The sector of home finance is anticipated to grow further during the following five years. The sector will expand as a result of increased accessibility, greater openness, rising urbanisation, and government incentives. Housing demand has increased across the country as a result of changing lifestyles, societal perspectives, and expanding labour mobility. Future forecasts show that these patterns will persist. Moving into larger residences is more likely as income grows. Younger borrowers of housing loans, increased need for independent homes, government programmes to provide cheap housing, and interest concessions under the Pradhan Mantri Awas Yojana should all contribute to rising housing financing demand.

An increase in earning potential, a need for a better standard of living and the growing base of aspirational consumers and their lifestyle changes have led to substantial growth in the sector.

The Reserve Bank of India has undertaken numerous initiatives to enhance and facilitate flow of credit to various sectors and parts of the economy in order to facilitate greater financial inclusion. It has put in a special effort to make sure that financial services and credit flow continue all the way to the last mile. In this regard, RBIs adoption of the Colending Model has paved the way for a model in which non-banking finance companies (NBFCs), housing finance companies (HFCs), and banks can collaborate and enter into an agreement to perform joint origination and lending in the market. The approach envisions a joint lending process in which each partner has defined tasks and the risks and profits are shared by both co-lenders. This strategy will aid in not only leveraging the liquidity capabilities of banks and other FIs but also in making efficient use of the extensive reach of NBFCs and HFCs, making money accessible to the intended beneficiaries at a reasonable price.

The Indian housing finance market clocked a healthy 13% CAGR (growth in loan outstanding - total housing loans on the books of all financiers put together) over fiscals 2019-2023 on account of a rise in disposable income, healthy demand emanating from smaller cities markets, attractive interest rates and government impetus on housing.

(Source – The Housing Finance Industry in India, Road Ahead, 2022 Report - ASSOCHAM)

KEY CHALLENGES FACED BY HFCS

Rising interest rates, reduced cash flow of borrowers on account of the high inflation rate, increasing cost of construction, leading to both a rise in property costs and a slowdown in new inventory launches and halting of the governments credit-linked Subsidy Scheme (CLSS) are some of the challenges facing this segment. One of the biggest challenges facing the housing market is the increase in unemployment. Companies are on a major spree to lay off employees. The increased unemployment will definitely impact the housing sector. Affected people are unable to repay their mortgages and people are hardly thinking of investing their money in industries like housing. Although the Central Bank has taken several measures to support the housing market, it remains to be seen whether these measures will be enough to offset the negative impacts of the pandemic.

With the rise in the repo rate again in response to an inflation goal, the cost of borrowing for housing finance businesses would rise, resulting in higher home loan interest rates for borrowers. It will raise the cost of taking out mortgages and purchasing properties.

Housing finance sector is developing at a fast pace during last two decades due to the enthusiastic interest of Government of India to solve the housing problem of the country. Although, the present environment of finance sector of India seems to be suitable for the uninterrupted growth of housing finance market, but there are few general problems which create hindrances either directly or indirectly.

The housing finance sector of the country is suffering from inadequate financial resources and due to the low paying capacity of most of the Indian population. In the present circumstances, the Government of India is trying to play the role of facilitator by offering a number of housing schemes for different section of the society, but due to poor administrative control and lack of strong will power most of the schemes are squeezed only up to the basic levels and never attain its final objectives. The private sector housing finance companies and commercial banks control over 85% of housing finance market of India.

SEGMENT REPORTING

The Companys main business is to provide loans for the purchase or construction of residential units. All other activities revolve around the main business. Hence, there are no separate reportable segments, as per Ind AS 108 dealing with Operating Segments as specified under Sec.133 of the Companies Act, 2013. Secondary segmentation based on geography has not been presented as the Company operates primarily in India and the Company perceives that there is no significant difference in its risk and returns in operating from different geographic areas within India.

RISKS AND CONCERNS

Your Company is exposed to risks such as liquidity risk, interest rate risk, credit risk, increase in Non-Performing Assets and operational risk which are inherent in the housing finance business e.g. take-overs of our existing accounts. Intense competition, increase in cost of borrowing and narrowing of spread, pose a big challenge for sustaining profitability on consistent basis. Prevailing inflationary trends will impact the affordability of vast number of end users.

RISK MANAGEMENT

Liquidity risks and interest rate risks arising out of maturity mismatch of assets and liabilities are managed by your Company by constant monitoring of the maturity profiles with a periodical review of the position. Credit risks are minimized by having established credit appraisal system in place, prescribing exposure limits, periodic review of the portfolio. Our Company operates in the mid segment and large chunk of borrowers are in the salaried group. Your Company is having CIBIL checks, field verification, stringent legal and technical due diligence etc. which have helped to reduce incremental delinquencies. Our recovery mechanism is also robust supported by best use of SARFAESI Act. Operational risks are minimized by strengthening the internal control procedures and addressing the deficiencies reported by the internal auditors.

ASSET LIABILITY MANAGEMENT

The Company adheres to "The Asset-Liability Management System for Housing Finance Companies – Guidelines" issued by the

Reserve Bank of India. The Asset Liability Management Committee is a management level Committee which analyses the cash flows in different time buckets taking into consideration, the committed outflow with the anticipated inflows to ascertain mismatches, if any. It also conducts adverse scenario analysis periodically. All the incremental borrowings, as per the Borrowing Policy are deliberated in the ALCO meetings.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has internal control systems which is commensurate with the size of the operations. Internal controls enable the prompt recognition and correction of operational irregularities and provide a constant and accurate summary of the organisations position. Internal audit checks are conducted on time to time basis and internal auditors recommendations are reviewed for improving systems and procedures. Your Company takes efforts from time to time to meet the changes in business conditions along with statutory and accounting requirements. The internal audit is carried out by independent firms of Chartered Accountants and covers the key areas of business. There is also an in-house internal audit department which is responsible for in-house internal audit activity of the Company. The Audit Committee & Statutory Auditors are periodically apprised of the internal audit findings and compliances. The internal control system is reviewed by the Audit Committee.

BUSINESS SEGMENT OVERVIEW

Over the past 34 years of its existence, the Company has gained a good reputation across the country as a reliable HFC. The Companys broad selection of loan products under the Housing and Non-Housing category are suitable for meeting the various needs of a wide spectrum of customers. The Companys Product Basket includes Individual Housing Loans for purchase of new properties and resale properties, Composite Loans (Purchase of Site and Construction), Mortgage Loans, Repair & Renovation Loan, Construction Home loan etc.

Total income for the year under review is 1,06,964 Lakhs as against 1,12,888 Lakhs for the previous year. For the year under review, Profit before tax is 20,391 Lakhs and Profit after tax is 15,116 Lakhs as against 28,980 Lakhs and 21,320 Lakhs respectively for the previous year.

The Companys main thrust continues to be on Individual Loans. New loans approved during the year amounted to

1,34,730 Lakhs and loans disbursed during the year are 1,27,525 Lakhs as against 1,14,311 Lakhs and 1,07,435 Lakhs respectively for the previous year. The Retail Loan portfolio as at March 31, 2024 stood at 10,27,97 Lakhs as compared to 10,64,917 Lakhs for the previous year.

CREDIT RATING

Your Company had received rating from CRISIL Limited and ICRA Limited for its various borrowing programmes as follows:

CRISIL Rating:

For Commercial Paper programme of 1,500 crores as A1+.

For Fund Based Long Term Bank Loan facility of 9,100 crores as AA+ (Stable).

For Non-Convertible Debentures Borrowing Programme of 1,580 crores AA+ (Stable).

ICRA Rating:

For Commercial Paper programme of 1,500 crores as A1+.

For Short Term Bank Loan facility of 1,000 crores as A1+.

For Fund Based Long Term Bank Loan facility of 12,500 crores as AA (Stable).

For Non-Convertible Debentures Borrowing Programme of 1,580 crores as AA (Stable).

MARKETING

The marketing of your Companys home loan products are done through direct sales, through Direct Selling Agents, DSTs and through channels of Subsidiary company etc. Marketing of home loan products with a focused attention on existing as well as the prospective customers is a constant endeavour at the Company with 72 Offices (including Corporate Office) and 5 satellite offices spread across the country. Throughout the year, your company publicised its products in various regions of the country which contributed to its marketing success.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS

As of March 31, 2024, the total employee strength of the company stood at 519, who have been contributing to the progress and growth of the Company. The manpower requirement at Offices of the Company is assessed continuously and recruitment is conducted accordingly. The Company evaluates its business and personnel policies on a regular basis in order to improve working procedures.

RELATED PARTY TRANSACTIONS

The Related Party Transactions with details are furnished in the Notes on Accounts forming part of the Accounts. None of the transactions with any of the related parties were in conflict with the interests of the Company. Transactions with related parties entered into by the Company in the normal course of business were placed before the Audit Committee. The Companys detailed policy on related party transactions is uploaded on the Companys website for the information of all the stakeholders.

DETAILS OF KEY FINANCIAL RATIOS

Particulars	2023-24	2022-23	% Change	Detail reason for change in Ratio (if Change is >25%)
Debtors Turnover (times)	5.67	6.11	(7.20)	-
Interest Coverage Ratio	1.31	1.45	(9.66)	-
Debt Equity Ratio (Times)	4.68	5.38	(13.01)	-
Operating Profit Margin (%)	18.69	25.67	(27.19)	Profit before Tax decreased from 28,980 Lakh to 20,391 Lakh.
Net Profit Margin (%)	14.13	18.89	(25.20)	Net Profit after Tax decreased from 21,320 Lakh to 15,116 Lakh.
Return on Net Worth (%)	8.40	12.52	(32.91)	Profit for the period decreased from 21,272 Lakh to 15,357 Lakh.

DISCLOSURE OF ACCOUNTING TREATMENT

There is no change in the accounting treatment in the Financial Year 2023-2024 as compared to Financial Year 2022-2023.

CAUTIONARY STATEMENT

This Management Discussion and Analysis Report contains "forward looking statements" describing the Companys objectives, projections, estimations, expectations. These statements are based on certain assumptions in respect of future events. While we believe these statements reflect our judgment and future expectations, its important to note that a range of factors beyond our control could cause actual results to differ materially from what we anticipate. These factors include economic conditions, government regulations, natural disasters, and other important considerations. Company assumes no responsibility in case the actual results differ materially due to change in internal or external factors.