Kerala-based, Muthoot Pappachan Group is all set to become the latest player to foray

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into the housing finance business in the country by setting up a separate subsidiary in the next fiscal, although the group has dropped its earlier plan to apply for a banking license.

The Group plans to invest around Rs 100 crore over the next two years in the new venture, Muthoot Housing Finance Limited, which would be set up as a wholly-owned subsidiary of Muthoot Fin Corp.

The new entity would primarily target the affordable housing segment and aim to disburse small-ticket loans upto Rs six lakh.

In the initial phase, Muthoot Housing Finance will have 25 branches in the suburbs of major metros like Mumbai and Chennai, the Group's Chairman and Managing Director, John Muthoot 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 homeloan without much hassles," Muthoot told media over phone.

The decision to drop the banking foray plan was to facilitate the group's entry into the home-finance segment and also to bolster its existing non-banking finance operations, Muthoot said. Presently, the Muthoot Group has an annual turnover of Rs 20,000 crore and a 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.

Shortly the budget announcement that the RBI will consider giving banking licenses to corporates and NBFCs, Muthoot Group had expressed its intention to apply for the bank license like other players such as Reliance Capital and Bajaj Finserv amongst others.

Muthoot said that the company would soon approach the National Housing Bank for necessary approval to set up the new company and hopes to start lending operations by the third quarter of next financial year.

"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 is entering into the homeloan market at a time, when larger players in the segment like HDFC and SBI have introduced innovative products such as cheaper home loans (teaser), under which they offer loans at a fixed rate as low as 8-8.25 per cent to woo small home buyers.

Entry of local players like Muthoot, which has a good hold in the southern pockets of the country and a strong local knowledge, is expected to intensify the prevailing competition in the small loan segment. Started in 1939, Muthoot runs two NBFCs, Muthoot FinCorp and Muthoot Capital Services Limited.

The group has operations in brokerage, auto, gold and mortgage finance, Hospitality and infrastructure. Muthoot Fincorp has over 360 branches and offers products and services like gold and auto loans, money transfer and investment solutions.

MCSL offers capital market solutions that include leasing and hire purchase, vehicle Loans, bonds and deposits.