CONFIDENTIAL

Note on Customer Profiling for Loans Against Property

This note attempts to define the customer segment for the Loans Against Property
(LAP) business. The segmentation is based on the business premise that these
loans would be priced at 16% p.a.
Key Characteristics of the LAP market:

LAP market in tier 1 and 2 cities in highly competitive, with all banks, NBFCs and
HFCs, competing for their slice. The RAAC rates are in the range of 12% to 14%
p.a. And within this, depending on the customer profile, organisations at times
would be willing to give some discount as well.
Customer retention for financiers, is a major challenge, as once a customer is
seasoned, there are many competing financiers waiting to grab the customer
through the BT route, offering lower rates and top-ups.
A vast majority of customers are businessmen, who borrow for various purposes,
including business, investments etc. While the market is competitive on the
rate front, it is also seen that a typical LAP customer might pay a higher ROI, if
the loan amount provided is higher.
In terms of programs, loans are done under normal income assessment and
surrogate income programs.
The normal ticket size across different the financiers range from Rs. 25 lacs to
Rs. 2 crores.

Who is my customer?
Given the above premise and the specific characteristics of the market, herein we
lay-out the profile of our customer (Now this profile lay-out is such that would be
suited to a majority 80% - of customers sourced. The remaining could be outside
this profile). Please note that these are not product rules. These are customer
profiling parameters only to facilitate an understanding of our customer segment.

Our customer is one who already owns a property, that is free of mortgage. The
property could be owned by the customer himself or could be owned by the
family or in a joint ownership. But free property is the key here. And that means
that these customers already associate with a certain level of wealth.
Our customer is a self-employed businessman (non-professional).
Our customer is one who is ready to take a certain risk with his business (that is
why he would be ready to borrow at 16% p.a.), indicating that he has already
been doing his current business for some time. A minimum vintage of 5 to 6
years in the business. (Lower vintage customers would also be ready to pay a
higher ROI as they may be short of funds, but in general they constitute veryhigh risk and therefore not recommended).
He is more than 27 years of age.

CONFIDENTIAL

Our customer spends a minimum Rs.60000 per month towards personal

expenses for him and his family. These expenses include all household expenses
(groceries, food, car, fuel, electricity, entertainment, shopping etc.), education
for 1 or 2 children, at least one existing car loan emi and any other.
Therefore, his annual income is likely to be Rs. 12 lacs or above.

Why would a customer be ready to pay 16% p.a. ROI?

Given the competition in the market, the question arises as to why the customer
would be ready to pay a 16% rate of interest, which is much higher than the current
highest ROI in the market.
We believe that while there is a challenge of convincing customers to pay a higher
ROI, there does exist an opportunity and the same can be tapped based on a
consideration of the following items:

Life of a LAP loan: While the loans are structured for upto 15 years, the
average maturity for any financiers LAP portfolio is around 5 to 7 years. This is
mainly on account of balance transfers and prepayments. Therefore while
assessing a customer for a LAP loan, it is good to have a vision of 5 to 7 years in
terms of repayment ability of the customer and property assessment (even
though the loan may be structured as a 15 year loan). There is therefore scope
to take a higher risk on a LAP customer, compared with current process of
assessment followed by lenders.

LTV on the LAP loan: Recognising the demand for higher loan amounts on a
case, the LTV can be pitched at 75% (instead of 60% - 70% offered by the
market). 25% margin is a fair margin for tenure of 5 to 7 years average
portfolio tenure. This would get a loan amount that is higher than that which is
currently available in the market. While LTV is higher, there would be no
compromise on the quality of the security.

Loan Structuring: The risk could also be mitigated by smart loan structuring.
E.g., a loan can be assessed and approved for a longer tenure (say 15 years),
but the borrower may be given an option to pay higher EMI to amortize the loan
within a shorter tenure.