After selling freight space for German Railways, 55-year-old Dr Klaus Baetz is quite comfortable heading a housing finance company in India. He is the executive director, Birla Home Finance, representing BHW Holdings, which is an equal partner in the venture with Chambal Fertilisers and Chemicals, a K K Birla group company.

''Ultimately it is selling,'' he laughs. Baetz has the ambitious target of disbursing Rs 1,000 crore by 2005.

Originally Birla Home Finance was incorporated as a 100 per cent subsidiary of Chambal Fertilisers. The company took over ITC Classic Home Finance in 1999. In 2000, BHW Holdings, with an asset base of Rs 6,000 billion in Germany, was roped in as an equal joint venture partner. BHW Holdings has interests in housing finance, real estate, insurance, and private pensions in Germany.

The Delhi-headquartered Birla Home Finance has 10 branches and 17 satellite offices. The company plans to open 36 more satellite offices this fiscal.

Recently the company launched a unique savings-cum-loan scheme called Easy Home Loan Deposit Scheme. A first-of-its-kind product in the Indian home finance industry, the product targets consumers outside the tax bracket, who are unable to provide the kind of documentation required by housing loan providers. ''All housing finance companies and banks are chasing the same rabbit,'' explains Baetz. The rabbit is essentially the salaried middle class, constituting only 30 per cent of the housing potential.

In an interview to Domain-b, Baetz talks about the product and the company's future plans.

Can you give details about your disbursements and sanctions portfolio?
Over the years, our business portfolio has increased. Last fiscal the sanctions and disbursements went up to Rs 207 crore and Rs 142 crore while the figures for the fiscal 2000-2001 were Rs 85.7 crore and Rs 51.3 crore respectively. The current year targets are Rs 325 crore sanctions and Rs 250 crore disbursements. Last year our total income (interest income, processing fee and others) was Rs 37 crore and our profit before interest and tax was Rs 3.14 crore.

How would you differentiate Birla Home Finance from others in the market?
All the housing finance companies in the country are chasing just one segment -- the tax-paying salaried class -- leaving out other segments like shopkeepers, businessmen, traders, factory workers and those living in rural areas. We will be concentrating on this market. Our ''Easy Home Loan Deposit Scheme'' -- a savings-cum-loan product -- is tailored specially for this segment. Secondly, ours is the only company that does not operate through direct selling agents (DSA), a practice of BHW Holdings.

Can you explain your savings-cum-loan product?
It is a scheme open for everyone between the ages of 18 and 54. Under the savings phase, a person can choose a targeted amount and start saving. He can make contributions monthly / quarterly / annually for a period of 3, 4, or 7 years, much like a recurring deposit. The savings will earn an interest rate of 5 per cent compounded annually. The minimum size of a contract with us is Rs 50,000, which can go up in multiples of Rs 1,000 subject to a maximum of Rs 10 lakh.

At the end of the period, the saver can avail of a loan for purchase or construction of residential property. The loan amount will be equal to the value of savings plus interest, at 7 per cent interest rate, calculated at an annual reducing balance. If the saver does not avail of the loan, then the deposit will be returned with 1 per cent extra interest as bonus.

A member can also nominate or gift the deposit to anyone he wishes. The company has already entered into 400 contracts with an average contract value of Rs 1 lakh (savings-cum-loan portion totalled).

As for the delinquency risk, a person's financial integrity can be judged during the savings phase. Further, the property will be mortgaged in our favour so the risk is similar to any other normal housing loan transaction.

With the interest rates coming down will you be adjusting your rates on the savings and loan portion as and when there are rate changes?
We will tune our lending and borrowing rates in line with the market conditions while maintaining the 2 per cent differential between savings and loan portion.

About your financial position…
With an equity base of Rs 100 crore, our financial position is good. We are expecting a 10-year loan of $20 million from the International Finance Corporation, Washington. The interest rate is expected to be in the range of 9-9.5 per cent. In addition we get refinance from National Housing Bank (NHB). Last year we got Rs 40 crore from NHB and this year we expect Rs 60 crore. Our fixed deposit portfolio stands at Rs 7.8 crore. Our average cost of funds is 10 per cent and the spread is 1 per cent.

Are you not looking at securitisation of your asset portfolio?
There are two options available. One is securitisation of our loan portfolio. The one crucial issue in this is the default risk. Who will bear that, the buyer of the portfolio or us? The second option is to act on behalf of a bank in processing an application and disburse the funds, both for a fee. We are in the process of talking to a couple of banks for this purpose.

What is your NPA (non-performing asset) level?
Our NPA consists of only one client, that too a legacy of ITC Classic.