The National Housing Bank (NHB) has agreed to acquire 12.5 per cent stake in Mahindra Rural Housing Finance (MRHF), a wholly-owned subsidiary of Mahindra and Mahindra Financial Services (MMFS). A subscription agreement between NHB and MRHF has already been signed. MRHF provides loans in rural and semi-urban areas for buying, repair, and construction of new homes.

MHRF CEO Anuj Mehra said, “The loan would be given at a fixed rate of interest, which will be 2-3 per cent higher than the rates of other comparative banks.” In the initial stages, the finance company will lend money to the existing customer base of the MMFS. The latter already has a customer base of about a million. MRHF has begun operating from Maharshtra and Gujarat. Mehra added, “The current book size is Rs 10 crore, which means that the company has already provided loans to 550 customers.” NHB CMD S Sridhar said, “As per this agreement, NHB will participate in the first two years’ capital raising programmes of MRHF. We are acquiring a minority stake. This participation is just promotional not a catalytic one.”

The average loan size given by the company till date is Rs 2.6 lakh, whereas, the average income size of borrowers is Rs 2.8 lakh per annum. MMFS MD Ramesh Iyer said, “Till date, 60 per cent of customers are in rural areas. In terms of end-use, 54 per cent was borrowed for self-construction of the house, while a smaller 6 per cent was for home improvement. The rest was for new purchases. As security, the borrower will have to submit the piece of land on which the construction or repair work is taking place.”