Dear Shareholders,

At the onset, I am happy and proud to have joined the Company to begin a new cycle of collective growth and co-create a better future for each one of us. And I find myself very excited and optimistic about what lies ahead for the Company.

FY 2023-24 has been a remarkable year and satisfying for LIC Housing Finance with a rising Loan Book, even as we maintained our Profitability, Asset Quality and Solvency. Talking about the macro-environment, the Reserve Bank of India (RBI) continued with the pause in policy rate and the expectation of rate cuts was pushed further, largely due to the global environment. Tighter liquidity conditions, with geopolitical tensions and global volatility, kept interest rates at elevated levels during the year under review, and the overall demand scenario for housing loans remained steady.

A YEAR OF CONSOLIDATION

In the past year, the Company undertook a series of transformational changes, including a change in our technological platform, implementation of SAP, restructuring the marketing set-up by opening 46 new marketing offices and 44 new Cluster Offices, as a new addition to our structure, and improving the credit process by creating specialised credit appraisal clusters. All this was aimed at delivering superior quantitative and qualitative growth, with significant improvement in TAT and customer service.

In a key initiative, we strengthened our business processes by re-engineering, upgrading software, revamping our processing centres, improving customer onboarding. We rolled out other business expansion strategies and bolstered digital initiatives to counter competition and push loan disbursement. We also improved our physical presence – increased no. of offices to 450 from 314 last year.

Moreover, we improved our product mix with a better range of products with optimised rate of interest in order to increase our focus on high-yielding Loan Against Property (LAP). We are also serving our customers efficiently, with our Back Offices handling CRM, Recovery business and Ancillary business. We are ramping up business partnering to explore lending opportunities to home and affordable housing segments.

FINANCIAL AND OPERATIONAL HIGHLIGHTS, FY 2023-24

At LIC Housing Finance, we witnessed significant improvement in all areas of the Company’s operations. During the year, we remained focussed on accelerating loan growth and achieving better margins, buoyed by strong loan demand and expansion in non-core segments. In addition to vanilla housing loan products, we provide varied products including Loan Against Property (LAP); non-core products such as affordable housing and ancillary housing; and lines of credit to small housing finance companies.

FY 2023-24 was the best year in terms of margins and profitability, with record Profit After Tax (PAT) and Net Interest Margin (NIM). The Company reported the highest-ever Net Profit ever in its history at ₹ 4,765.41 crore, showing a significant growth of 65% from ₹ 2,891.03 crore PAT in the previous financial year. Outstanding Portfolio grew 4% at ₹ 2,86,844 crore, up from ₹ 2,75,047 crore in FY 2022-23.

As part of the Outstanding Portfolio, the Individual Home Loan segment stood at 85.13%, up from 83.16% in the earlier financial year. Total Disbursement stood at ₹ 58,937 crore, whereas Total Income stood at ₹ 27,235 crore vis-à-vis ₹ 22,674 crore in the earlier financial year. Despite interest rate volatility, Net Interest Margin (NIM) moved above the 3% level – at 3.08%, it was higher than 2.41% in the earlier financial year.

On the funding side, we witnessed an increase of 13 basis points in the overall cost of funds from 7.63% to 7.76%. Incremental cost of funds stood at 7.84%, as on 31^st March, 2024, with a yield of 9.89% on advances on the portfolio. Given our Triple A-rating, we continue to command a competitive cost of funding in the market.

On the recovery front, with continuous and focussed efforts, our asset quality improved, with significant and consistent reduction in the delinquency levels. This led to our Gross Non-Performing Assets (NPAs) declining from 4.41% in FY 2022-23 to 3.31% in FY 2023-24. Net NPA declined from 2.50% in the previous year to 1.63% in the current financial year. Total provision stood at ₹ 6,270 crore, as on 31^st March, 2024. Profit Per Employee improved to ₹ 198.48 lakh vis-à-vis ₹ 117.43 lakh in the earlier year.

Despite the liquidity crunch and volatility in the market, we ensured effective and improved liquidity management, as we managed our borrowings at competitive market rates. Our Capital Adequacy Ratio was 20.78% vs 18.23% in the earlier fiscal year.

LIC Housing Finance has been a consistent dividend-paying company since its inception, paying regular dividends to shareholders over the years. FY 2023-24 has been our 35^th year of constantly rewarding our shareholders. During the year, the Board proposed a dividend of 450% (₹ 9.00 per share) on Face Value of ₹ 2 per share, higher than 425% dividend given to shareholders in the previous fiscal year of FY 2022-23

Further, we inculcated changes in our liability mix and reduced our overall weighted average cost of funds and recovered our NPAs. In addition, we continued to consolidate our presence in Tier 2/3 cities with 56% of the total disbursement during the year accounted from these cities. The Affordable Housing segment contributed the highest to our total book size, i.e., 70% our disbursement is to the salaried class.

INCREASING FOCUS ON AFFORDABLE HOUSING

The Company was so far focussing on the organised segment of customers having a regular source of income and a healthy CIBIL score. Hence, we are targeting at catalysing India’s Affordable Housing Finance space by increasing access to housing finance to the unorganised segment, including the economically weaker sections (EWS) and low-income groups, which is contributing significantly to India’s economy today. This is the segment that typically runs their own small business or might be employed in a small and medium enterprise.

We plan to increase our share of AH to 20% over the next 2-3 years. By targeting this high-margin segment, we are building a base for ourselves and leveraging the growing demand for housing finance in Tier 2&3 cities. We strive to facilitate this potential pool of customers with better quality of living, ensuring improved returns and bolstering financial inclusion.

INTRODUCING A 5-TIER STRUCTURE

As of 31^st March, 2023, there were 24 Back Offices managing 282 Area Offices, which led to delay in turnaround time. As part of our strategic expansion of network, we introduced a 5-tier organisational structure by adding Cluster Offices – a new tier between Back Offices and Area Offices. As part of our expansion strategy, 46 new Area Offices and 44 new Cluster Offices were opened during the year, as we tapped into unpresented geographies, and into new markets and segments.

The new organisational structure not only aims to move deeper into Tier 2/3 cities, but it also targets reduction in delays in the turnaround time. The innovative approach will also serve as a Hub-and-Spoke model reaching out to people beyond Tier 1&2 cities. The Spoke locations will be increased further and will be serviced by a nearby Back Office. The existing resources are being utilised for sourcing new business and providing quality customer service.

Despite the growing demand for Project Loans, we have decided to adopt a cautious stance owing to the high-risk element in this segment, especially as this segment is contributing to our NPAs. We have decided to be conscious of not being too aggressive in the Builder segment

We are targeting growth in the number of Marketing Intermediaries or what we call – Feet on the Street. We are working on hiring 250-300 people in administrative and marketing sectors to further boost Affordable Housing. From our current workforce of 2,500, the additional hiring will augment the total workforce to 2,800-2,900 by the end of FY 2024-25.

HARNESSING NEWER OPPORTUNITIES

Having set up a stronger foundation, we now look forward to an even better FY 2024-25. We are aiming for 13% growth in the loan book, supported by an increased focus on affordable housing finance, especially in Tier-3 towns. We are working on increasing the Affordable Housing mix to 20-25% in the next 3-4 years, from 10-12% currently. With this changed mix, we endeavour to capture the untapped potential and opportunities in this segment and provide an opportunity to millions of aspiring Indians to own their home with a moderate budget.

DRIVING TRANSFORMATION AND NURTURING CUSTOMER TRUST

In another strategic development, we also upgraded our lending software, which was an over-encompassing issue. We introduced a new Lending Management Software which is also compatible with Affordable Housing with adequate checks and balances. We also revisited the SAP software from Orion, strengthened the HOMY app and introduced a new treasury package for repayments and borrowings.

Through our IT-related transformation endeavours, we aim at improving our service standards through ongoing digital transformation of our processes. We continue to further our transformation-led initiatives, including Project RED that is helping drive automation in processing leading to improvement in turnaround time. We are also streamlining customer acquisition, enhancing the efficiency of loan servicing, simplifying the application processes and improve access to financing solutions and bolstering the overall demand for housing units.

Through Project RED, we are reimagining excellence through Digital Transformation and bringing about totally differentiated loan journey to borrowers right from onboarding, approvals and post disbursement servicing. We are working on making HOMY app more effective and easing customer onboarding. We are also easing the process of applying for loans and sanctions. With HOMY, we are organically unifying the work culture, strengthening the processes, deepening customer engagement through best-in-class technology.

To further improve customer experience through digitalisation, we are adopting tech-led processes, collaborating our insights with that of our customers to strengthen asset quality. We are also increasing our operational efficiency for acquisition, servicing and collection. In a key development, we are working on using AI algorithms, and plan to leverage this technology to effectively analyse property data, market trends and machine learning models, in order to assess property valuations and risks accurately.

GROWING DEMAND FOR HOUSING FINANCE

As you all are aware, housing demand has risen in the post-pandemic period as a growing middle class looks to invest in real estate. Nearly 13% of India’s GDP was contributed by the real estate and housing sector, as aspiration levels continued to be high, and demand is now picking up in the mid-segment too.

Pent-up demand post-pandemic is contributing to the positive environment, with all the real estate verticals – Residential, Commercial, Retail and Warehousing – coming out of the prolonged downcycle. The interest rate trajectory is likely to have peaked with growing demand and customers are coming back to the Home Loan market.

The demand for housing loans continues to be strong, making housing finance companies benefit and grow their AUM. We have estimated growth in our disbursement, with further focus on Affordable Housing. Moving ahead, we expect positive economic environment and stable growth despite recent monetary tightening, hardening interest rate and rising inflation.

FUTURE OUTLOOK

In view of the above, we are expecting further improvement in Net Interest Margins and increase in Loan Disbursements this fiscal. We expect our Loan Book to grow by 12%, surpassing growth in FY 2023-24. Moving ahead, we plan to add 25-30 branches and expand presence in Tier 2/3 cities, especially Maharashtra and Madhya Pradesh, where home loan penetration is relatively low.

We are also working on fortifying our market presence, enhancing profitability, and improving asset quality in a competitive housing finance industry. With these targeted initiatives, we maintain our focus on further improving our market share, consolidating the current market position, strengthening customer relationships and delivering value to all our stakeholders.

OUR HOLISTIC BUSINESS APPROACH

In a nutshell, during the year, as we continued to meet the housing needs of individuals and contributing to the overall growth and development of the nation, we are eyeing growth in the Retail Book, ramping up Affordable Housing book for addressing the needs of the bottom of the pyramid, and increasing the share of high-margin products, non-core products. We are tapping into newer markets not presently covered by recruiting marketing intermediaries/connectors and holding camp offices.