In yet another case of a regulator’s stance being thrown to the winds, HDFC has decided to ignore the Reserve Bank of India’s observations
on teaser loans
Moneylife had earlier reported (see here) on how the RBI has repeatedly expressed its displeasure over teaser rates, saying that these schemes are unfair to existing borrowers.
But HDFC has gone ahead and launched a new dual-rate scheme, despite the clear stance of the central bank.
The financial institution today lowered its home loan rate to 8.25% for the first year in its dual-rate scheme, commonly known as a teaser loan, applicable on fresh loans.
Under the scheme, the country’s biggest mortgage provider would offer a fixed rate of 8.25% up to March 2011, then 9% for the next one year and the prevailing floating rate for the remainder of the loan tenure.
“This is a flexible product with dual rates. The fixed rates are applicable for all new loans irrespective of the loan amount,” stated HDFC.
The teaser rates have been a major issue in the home-loan market in the recent past, with public sector lender SBI walking away with a big pie of the market through its own teaser rates. A number of lenders, including HDFC, had followed SBI last year in offering teaser rates, but most of these offers were discontinued earlier this year in a rising interest rate scenario.
Although SBI has continued with its teaser rates, it had raised the effective interest rate on its scheme at the beginning of this month.
SBI has extended its 8% special home loan scheme till 30th April, but revised the rate for the second and third years to 9% from 8.5% earlier.
HDFC today said that besides the new dual-rate scheme, its existing floating rate product would continue without any change, where rates are 8.75% for loans up to Rs30 lakh, 9% for loans between Rs30 lakh and Rs50 lakh and 9.25% for loans of Rs50 lakh and above.
Announcing the new scheme, HDFC managing director Renu Sud Karnad said that the company received “overwhelming” response to its earlier dual-rate offer and its cost of funds has now allowed launching a “lower initial fixed rate.”
“This special offer is applicable to all new home-loan customers who apply before 30 April 2010, and take at least part-disbursement before 30 June 2010,” she added.
Without naming SBI, HDFC said that the effective rate on its new scheme was “very attractive” and “much better than other large players in the market offering similar products” for a loan tenure of 15 or 20 years.
SBI is the only other major player currently offering teaser home loan rates.
“We would also allow the option to all customers whose loans are fully undisbursed as of 14th April to convert to this product without any conversion fees,” Ms Karnad said, adding that the special rates would also be available to NRIs, persons of Indian origin and self-employed customers.
HDFC recorded a growth of 22% in loan approvals during the nine-month period ending 31 December 2009, to Rs44,110 crore, from Rs33,820 crore in the corresponding period last year.
Loan disbursements during the nine-month period ending 31 December 2009, amounted to Rs33,527 crore compared to Rs27,211 crore in the corresponding period last year, representing a similar growth of 23%.
The company said that its non-performing loans have also been declining on year-on-year basis for 20 straight quarters.
Unable to expand through a combination of advertising and selling through national distributors, the fund house is empanelling smaller distributors now
Fidelity Fund Management Private Ltd, the US fund management major which launched its India operations in 2005, was so far following a pan-India distribution model by selling mutual funds through national distributors like banks. It is now trying to woo smaller intermediaries to expand its distribution network and to garner a larger pie of assets under management (AUM).
Earlier, Fidelity was only empanelling national distributors who could funnel Rs100 crore of AUM. A fund house may follow an ‘aggregation model’ wherein it ties up with national distributors who have a large distribution network of their own. This is a more cost-effective model for asset management companies (AMCs), wherein they don’t have to spend on resources like commercial office space, employees, etc. The AMC may cough up a higher commission to the national distributors for their services.
“As an advisor we are supposed to sell all mutual funds which are doing well for our customers. It’s a major business issue for us. We approached Fidelity for an agency several times, but it said that it would not empanel IFAs (independent financial analysts),” said Ramesh Bhatt, a Chennai-based IFA.
“This might be the case because Fidelity doesn’t want to operate with so many distributors across the country. In the UK, an intermediary needs to make a declaration every six months. An intermediary himself needs to follow all those rules. In India if you have an ARN number then you can get empanelled with any AMC,” said a top official from a leading fund house.
According to AMFI (Association of Mutual Funds in India) data, Fidelity had an average AUM of Rs7,683.90 crore as on March 2010, compared to Rs6,172.90 crore for the corresponding month last year. “Earlier I was told that they would not empanel me. I had to contact officials in Delhi. They gave me a special approval,” said Vivek Rege, MD, VR Wealthy Advisors Pvt Ltd.
Why has the company now decided to change its strategy? “They spent crores on advertising and brand building and now they find it difficult to get retail business. Brand recall does not guarantee business from customers,” said a Mumbai-based IFA, preferring anonymity.
According to sources, Suraj Kaeley, director (sales & business development) of Fidelity is trying to expand the company’s India network. Mr Kaeley, was earlier associated with Franklin Templeton Investments and Metlife India Insurance Company Ltd.
Earlier, small intermediaries who were not empanelled with Fidelity were routing their products through other large brokers. According to sources, Fidelity now carries out a stringent check on the intermediary’s bank details & creditworthiness, and investigates involvement in any litigation before empanelment.
Today, a spokesperson from Fidelity told Moneylife: "As part of Fidelity's plans to build a long-term business here, broad-basing our distribution capability has always been a key element. To that end, we have been expanding our distribution footprint by regularly empanelling distributors over the last five years since we started business and continue to do so."
The Unilever CEO believes that HUL is still the lion in several categories. He is living in his own world. Over the past decade, HUL has repeatedly tried and failed in a large number of new businesses, which makes it look like an also-ran
A few days back, the chief executive officer of Unilever, Paul Polman, visited India and talked about the growth plans of Hindustan Unilever (HUL). The most surprising fact was he said that product innovation is the key growth factor for HUL and that it would double its turnover.
Fortunately, while Mr Polman has clearly articulated his target, he has refrained from specifying by when this target would be reached. This is because the CEO was really talking through his hat when he was talking about doubling the turnover.
Take a look at what the performance of HUL has been over the past decade, when the Indian market has conferred huge profits to Indian companies and multinationals. Its net sales in 1999 were Rs10,142 crore. By 2005, it was still around Rs10,982.35 crore and last year it reported net sales of Rs20,623 crore. In effect, HUL took a whole decade to double its turnover—a compounded annual growth rate (CAGR) of 7% in a country where inflation is at least 7% on an average and is sometimes in double digits. Inflation-adjusted HUL has not grown at all. Of course, HUL has demerged divisions and that is why net sales have been down, but it has also acquired businesses during this period
Now, take a look at what a company like Nestle has done over this period. Its net sales in 1999 were Rs1,543.90 crore. This jumped to Rs Rs5,149 crore in 2009—a CAGR of 13%.
There is something so fundamentally wrong with the business of HUL that the Unilever CEO should be talking about a drastic strategy of energising growth and not vaguely dreaming of doubling turnover. After all, successive Unilever chiefs and heads of HUL have talked about various initiatives that have sounded as clever as its advertising—without delivering much to either the topline or bottomline. For instance, a few years back, we suddenly heard that HUL had restructured its portfolio into “power brands” without the slighest of understanding that it was really selling commodity products.
If it tried to raise its prices even the slighest, these “power brands” would be out of the market because Indian products from Godrej, Emami, Jyothi Laboratories and Dabur were snapping at its heels.
The fact is, unlike almost all multinational companies, HUL is living in a world of its own. For instance, what explains its tired effort at producing ever more brand extensions? HUL thinks that consumers would be happily buying another round of soaps and shampoos centered around Dove— Dry Therapy Shampoo, Dove Daily Therapy Shampoo, Dove Hair Fall Therapy Shampoo, etc. backed by an advertising blitzkrieg. Consumers are simply put off and tired.
If the Unilever CEO believes that HUL is still the lion in several categories (as he said in an interview), he is living in his own world. The fact is, over the past decade, HUL has repeatedly tried and failed in a large number of new businesses, which makes it look like an also-ran. Whether in personal care, home care products or food brands, HUL has only a string of failures to show. In 2001, it took over Modern Bread from the government and had aggressive plans to grow this business by creating a variety of baked products around flour from biscuits to spagetti. Over the years, nothing happened. Similar is the scenario with with its Annapurna Atta, which has failed to lead HUL into other successful categories.
The company tried to push its bread and atta together in the year 2002 by launching ‘branded Modern atta bread’ but this was not what the consumers wanted. During the past decade, HUL also forayed into the beauty and skincare segment using the ayurvedic platform. In last eight years, the Ayush brand has only meant large losses. Consumers’ recall of this brand is extremely poor, forget about break even. The company itself doesn’t know when this segment will be profitable.
The fact is, HUL now singularly lacks execution capability. It is still playing the 70s and 80s script of brand extensions and big nationwide ad spend. It spent Rs9,125 crore over six years from 2003—just to stay where it was. This strategy worked when Doordarshan was the only visual medium and competition was non-existent. The world has changed but HUL has not. It is not going to be easy at all to wrest back the initiative. In a highly competitive market, HUL has turned out to be slothful and unimaginative.