Dewan Housing was in the news recently for hiking its retail lending rates by 25 basis points. The cost of funds has been moving up in tandem with all the other macroeconomic factors though the rupee has staged a recovery, says Kapil Wadhawan, CMD, Dewan Housing Finance. It was on the back of all this, the interest rates for both existing as well as new customers were increased, he adds.
The company boasts of a near NPA free book. In Q1, Dewan Housing maintained less than 1% gross NPA and net NPA of close to zero. It believes the second quarter too will have similar NPA numbers.
On buying 74% stake in DLF Pramerica Life Insurance, Wadhawan says: "It is imperative for us to look at something beyond housing finance and life insurance clearly felt as one of the areas where we could capitalize on the franchise that we have been having."
The company hopes to achieve 18-20 percent growth in its retail housing loans by this fiscal year end, which it showcased in the first quarter. Wadhawan feels close to 2.8-3 percent margins is sustainable, going forward.
Below is the verbatim transcript of Kapil Wadhawan's interview on CNBC-TV18
Q: You have increased your retail prime lending rates, can you take us through how exactly the cost of funds is panning out for the company at this point and what is possibly net interest margins (NIMs) looking like as well?
A: Clearly on the back of the tightening of liquidity within the system, the banks are not being too proactive in coming out and lending, even though we as a housing finance company being in this sector for nearly three decades have not felt too much of a pinch on liquidity but clearly the cost of funds has been moving up in tandem with all the other macroeconomic factors that we are seeing around us. Surely, some silver lining now on the clouds with the rupee having staged a recovery. It was on the back of that and the slight increase in the cost of funds that we thought it is prudent to increase the interest rates for both our existing as well as our new customers.
Q: I was intrigued by your purchase of that stake in the insurance business, is this in the listed stock that you will be buying and what is your interest, one cannot see any synergy?
A: Clearly, there is a lot of synergy. We have been in housing finance for three decades now and leading player in the housing finance space primarily focusing on the lower and the middle income segment. This is clearly an extension of what we would like to do within the larger financial services place in the country. Life insurance being long-term again offers tremendous opportunity. It is still underpenetrated like mortgages and we feel that there is still a lot of product innovation that can go in to the sector.
In the last couple of years, the role of the private sector has largely been subdued because of not so apt models of operation and we feel that having got a large distribution franchise in the country, already under-writing significant amounts of business for the existing selling insurance for existing under-writes. It is imperative for us to look at something beyond housing finance and life insurance clearly felt as one of the areas where we could capitalize on the franchise that we have been having.
Q: It would have been convincing if you had applied for a banking license then it makes sense, housing mortgage bank, insurance, you will be in the entire spectrum of finance, but you all haven’t applied in that category, have you?
A: I am very honestly encouraged to see the statements by the new governor, the opening statements which he made on differentiated banking licenses. That is something which we have been pressing for even to our regulator the National Housing Bank to impress upon the RBI for a very long time. So I am encouraged to see that. I think the current guidelines on new banking were fairly restricted for a specialized player like ourself to look at banking from that perspective.
Q: What is your guidance on entire credit growth for at least for the foreseeable future if not for the entire fiscal?
A: It is on the back of subdued demand and no offtake in credit except for certain pockets in retail credit. We at our end in DHFL feel an 18-20 percent growth in our retail housing loans is doable. In Q1 itself we have showcased that kind of growth and the remaining three quarters don’t look much different even though in the last couple of weeks or during this quarter, we saw some subdued demand coming from largely tier I towns but tier II and tier III markets is where we specialize in. Clearly still continue to see robust demand on the ground.
Q: How will margins do this quarter, are you already witnessing any higher cost of money because of the nature of the money market?
A: We have been having very sustainable margins close to 2.8-3 percent. Even though this quarter we are seeing a slight pressure on the margins, we believe that close to 2.8-3 percent margins is sustainable going forward, hopefully the credit policy to be announced will give some respite on the rates of interest, but margins will be sustained at the same level as they were and as they have been for sometime now.
Q: What about NPLs?
A: Our primary focus is on retail housing loans. Majority of our book which is more than 90 percent is focused on the low and the middle income segment and primarily to first time home buyers. We haven’t seen too much of stress on our asset book when it comes to non-performing loans. In Q1, we maintained less than 1 percent gross NPA and net NPA of close to zero and I think that even during this quarter, we don’t see too much of a worry on the NPA side.
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