Vastu HFC has been using proprietary AI/ML scorecards and in-house analytics to drive faster credit decisions while maintaining high asset quality:
Vastu Housing Finance started operations under new management in 2015, having presence in 5 locations with equity infusion of Rs567 mn. Its consolidated AUM crossed Rs35 bn and it crossed 100+ branches and it also crossed Rs50 bn cumulative disbursements in 2022. Its portfolio is well diversified across 180+ markets and 50+ sectors across 14 states of the country. Sandeep Menon, the Founder, MD & CEO, is a senior banker with over 23 years of diverse experience spanning consumer and SME lending, home and personal loans, as well as commercial finance at leading foreign financial institutions such as GE Capital, Standard Chartered Bank and Barclays Bank. He has built large lending business across secured and unsecured lending.
Diverse Origination Ability
Vastu’s assets under management (AUM), including the subsidiary, in FY23 grew at 67% y/y to Rs60.97 billion; one of the fastest in its peer group. The company reported a PAT of Rs2.85 bn on a consolidated basis in FY23. Its stage 3 assets have improved to 0.88% as at end March 2023 against 1.14% a year ago. Sandeep Menon shares reasons for the growth: “Our growth was a result of planned and precise investments made ahead of time in people, processes, technology, and franchise. Strong performance delivery amidst a tough macro-economic environment was led by our diversified and well-established origination capability, supported by a sharp focus on collections and underwriting quality. We are fulfilling our vision by providing innovative, flexible, and inclusive financing solutions with a positive social impact.”
Rural, Women, Self-Employed
Vastu HFC’s customer base grew by 72% y/y to 67,000 in FY23 vs. 61% over the last 3 years. It continues to focus on its core segment while staying true to its motto of making finance accessible to credit-underserved customers in India. Affordable housing is a multi-decadal opportunity. Vastu HFC’s entrenched reach, ability to originate, underwrite, and risk management capabilities positions it well to expand its customer base at a robust pace in line with macros and the opportunity. In order to fulfil its core purpose, the company also recently started initiatives towards micro housing and MSME loans (ticket size of Rs5-8 lakhs), which will scale up in the years to come. Social inclusion is a key focus area for Vastu HFC, as reflected in >95% of its loans having at least one, woman borrower.
Menon explains: “Our core focus area has been self-employed individuals (81% of the loan book), with an average loan ticket size of approximately Rs1.2-1.3 million, largely in the semi-urban and rural geographies of the country. Developing the capability to assess informal but bankable customers in a cost-efficient manner with an ability to manage risk has been central to our success.”
Weathering Difficult Macros
The covid pandemic had an industry-wide impact. What helped Vastu was its strong customer connect and prudent underwriting and risk management practices. It has always focused on developing deep customer connect. Underwriting is driven by an understanding of the customer, segment and data backed analytics aided by its technology platform. Additionally, its approach and ability to connect with and work through local communities were also beneficial. Geographically, a well-diversified book spread across 14 states (no state contributes >16%) and exposure across multiple segments has helped Vastu through difficult macros.
Besides, Vastu’s journey began during economically volatile times with significant market dislocations one after the other, such as demonetization, changes led by the implementation of GST and the NBFC crisis. Menon argues: “Vastu’s ability to manage and course-correct during the pandemic has been superior to most others. Building steadily through such environments, we have emerged as a strong, mature, resilient, and agile franchise. The purpose-driven investments made post-covid are laying a strong foundation for the future and ensuring we remain fit for growth.”
Analytics, Tools, Dashboards
Vastu HFC’s emphasis on operational excellence, prudent risk and cost management, and people strategy, aided by technology and analytics, has helped drive consistent performance. Its processes and product innovation using technology have enabled seamless underwriting of the traditionally underserved, self-employed customer segment. Vastu HFC has been using proprietary AI/ML scorecards and in-house analytics to drive faster credit decisions for customers while maintaining high asset quality. This has led to a quick turnaround time for customers. Many initiatives have been undertaken with a long-term focus. Vastu HFC was one of the first mortgage players to achieve an entirely paperless process.
Vastu’s technology platform Pulse is central to its business operations. It enables straight-through processing, deep data insights and purpose-driven automation across all our key processes, resulting in a superior customer experience. Pulse is rapidly transforming into a modular and scalable platform with simpler, faster, and more intuitive workflows. The platform is increasingly adapting to predictive decision engines and scorecards, thus further reducing manual interventions while also driving operational efficiencies. Pulse has been instrumental in driving industry-leading growth while maintaining quality.
Menon claims: “Our award-winning proprietary system Pulse, that governs the entire loan process from customer onboarding to collection, has come in handy. This adds tremendous value to driving customer centricity, setting high governance standards, tight controls over credit, market, and operational risks, and ensuring scalability.”
Additionally, the company also undertook several initiatives to further hone its technology and analytics capabilities. Product-specific bureau scorecards use proprietary Al/ML scorecards and in-house analytics to drive faster credit decisioning for customers while maintaining high asset quality. Integrated into the predictive scorecards and collections module enables smarter risk management and collections. The company also has enhanced early warning signals, dedupe tools, and mobile dashboards.
Investment in technology, people and systems is a continuous and ongoing process at Vastu, in line with its vision to be an agile and fit-for-growth institutional platform. Menon adds: “The expected outcomes are improved turnaround time (TAT) for the customers, low-code, plug-and-play systems for scaling quickly, creating a fully integrated ecosystem with dedicated operations, and innovation excellence teams.”
Growth, Expansion Plans
Vastu HFC’s vision is to be a catalyst for change in the affordable housing finance sector. It recently opened a new all-women branch in Azadnagar, New Delhi, managed entirely by women staff and operates under Vastu’s new loan product category – micro housing. This initiative is focused on empowering women from low-income groups and economically weaker sections of the society to own a home. The micro housing product category offers loans under Rs5 lakh and is designed specifically for women customers, who want to build or develop small houses within a specific investment range.
The branch also offers a range of attractive services to women applicants, such as easy application process, incentivized rates, lower processing fees, special schemes, EMI holidays, rebates, waivers and quick disbursements to make the loan process easier. Additionally, women customers can also access exclusive and attractive insurance products, covering life, health and home, from Vastu’s insurance partners. Menon underlines: “99% of our loan applications involve female applicants. The initiative aligns with our commitment to empower women from low-income groups to own and build a home as an investment for a safe and secure future.”
The available opportunity and Vastu’s distinguished ability to understand and underwrite in the segment ensure continued growth momentum through the current fiscal year. Vastu’s market entry strategy has always been to objectively assess the opportunity; hence, rationalization is built into its plans right at the outset. Menon reveals: “While we may enter many new markets, we look to expand our physical presence in 40–50 new markets this fiscal year.”