Muthoot Pappachan Group, a Kerala based financial institution has decided to move into the housing finance business by setting up a separate subsidiary in the upcoming fiscal.
The group was earlier a part of the race by private players and NBFCs to get a bank license but has decided to drop the plan.
The new venture would be named Muthoot Housing Finance Limited and the group plans to invest around Rs. 100 crore over the next two years into the project.
The new division would be a wholly owned subsidiary of Muthoot Financial Corporation.
The new entity would be catering to the needs of the affordable housing segment and also would aim at disbursing small ticket loans of up to Rs. 6 lakhs.
The initial phase would see 25 branches of Muthoot Housing Finance in suburbs of metros like Mumbai and Chennai, the Group's Chairman and Managing Director, John Muthoot said.
The group said, "Setting up a housing finance company is part of the group's strategy to take our operations into the next level. This would also hugely benefit the lower income segment to secure a home loan without much hassle."
Speaking on dropping its idea to enter the banking segment, Muthoot said that the group wanted to enter the housing finance segment and also to strengthen its existing non banking finance operations. Muthoot Group has a current turnover of Rs. 20,000 crore and a good customer base of over 10 lakh.
"At first we thought of doing that (applying for banking license). But, later decided not to apply for the banking license as we felt that there is a lot of untapped potential in the NBFC business," Muthoot said.
Muthoot has said that it will very soon be approaching the National Housing Bank for necessary approval in order to set up the new company. It plans to start with lending operations by third quarter of next fiscal.
"The idea is not to compete with large players in the segment but to tap the opportunity in the middle-class segment, which is yet to be explored fully. We are looking at customers, who have a monthly income in the range of Rs 6,000-Rs 12,000, with an average ticket-size of Rs 2.5 lakh-Rs 6-lakh," Muthoot said.
The Group would be facing tough competition insetting up its hold in the housing finance market at a time when big players like HDFC and SBI are sucking up market share with innovative products like teaser loans which enable customers to avail loans at pretty low rates.
Muthoot has a strong customer base in the Southern part of the country and its entry in the market will be intensifying the competition in small loan segment.
A company started in 1939; Muthoot runs two NBFCs, Muthoot FinCorp and Muthoot Capital Services Limited.
The group also operates in brokerage, auto, gold and mortgage finance, hospitality and infrastructure segment. It has over 360 branches in the country.