V Raghu, executive director, Repco Home Finance says the financing company will pass on lower rate benefits to its customers if the central bank decides to lower rates anytime soon.
In an interview to CNBC-TV18, Raghu says the company is eyeing to grow its loan book by 25-30 percent with net interest margins (NIMs) between 3 to 5 percent.
Below is the transcript of V Raghu's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Basant Maheshwari, Founder of the Equity Desk is also asking questions.
Sonia: Can you tell us what the potential looks like in 2015, what kind of loan growth are you envisaging for the company?
A: We expect to maintain the growth momentum during FY15 also as to what we have been doing in the last couple of years, we expect to maintain a loan growth book of around 25-30 percent growth in the loan book for FY15.
Latha: Are you already seeing an improvement in margins since wholesale cash has become a tad cheaper and how does the prospect look in 2015, what were your net interest margins in 2014, what they maybe in 2015?
A: Margins have been steady over the last couple of years. We have been able to maintain a margin of around 3 percent and we like to continue to maintain this margin when you are especially dealing with small ticket size and you are able to maintain a margin of 3 percent. That should be a good margin to maintain.
Basant: For the last two years, we didn’t take any rate increase with regard to our borrowers because we didn’t want to pass on the increase in rates. So if interest rate comes down, will we pass on the decrease in interest rate or we intend to hold them and because if interest rates come down, wholesale rates are already down and if Reserve Bank of India (RBI) reduces rate, is our NIM going to expand by any means because when we didn’t increase rates, are we going to decrease them now?
A: We will definitely take a call on this and try to pass on some benefit to the borrowers also. As I told you, our long-term policy is to maintain a NIM of around 4 percent. We are able to do that and to some extent we should be in a position to pass it on to the borrowers. We will take a call as and when the interest rates are reduced by the RBI.
Latha: Given the Central government’s thrust on affordable housing and possibly a turn in the economy, if I have to ask you for a compound annual growth rate (CAGR) over the three years, do you think you will do better than 25 percent?
A: Our long-term aim is also to maintain the growth rate of around 25-30 percent. We will like to maintain that growth because once you grow, you also have to maintain the quality of the assets. So we would like to balance both and see the opportunity that is available in the market and we will take a call accordingly whether to increase the growth and then also to maintain the quality.
Sonia: The quality of your assets has improved quite a bit, even in the quarter gone by, I understand that your gross NPAs have fallen to 1.65 percent versus 2.5 percent, do you expect further improvement in FY16?
A: Yes, we always try to lower that figure from 1.65 percent. We will definitely try to take it to the industry average of around 1 percent, we will try to bring it.
Latha: You are not thinking for applying for a small bank license, are you?
A: No, we aren’t thinking of a small bank license as of now.
Basant: In the last 12-13 years, we have grown our loan assets by 50X. That was obviously because we have had a small base but we didn’t have experience at that time, so but if you take the advantage of having a lower base, you also have the disadvantage of not having any experience at all. I think you started in this century, you didn’t start it in 1999 even. So over the next 10-15 years, I think your story is for 2025 or maybe 2035 also. So what are the things that you would like the government to do because last time you told us that there isn’t enough free supply of land for people to construct homes and if homes don’t come up, how can you grow at 35-40 percent, which you can and secondly, what is so different that has happened in the last 12-13 years where we were growing at 35-40 percent that we cannot grow at that once we have the tailwind of the government and the lower interest rates because of affordability goes up and things like that. So any sense on that if you could enlighten us?
A: I still maintain that the supply side conscience needs to be removed for increasing the supply of more of affordable housing. As far as housing is concerned it is nothing to do with most of the land act or something like that because the land requirement for individual housing is much lower than what you require the land for an industry. So we don’t require large chunk of land for housing per se.
If we are doing some small project in small towns in tier II, tier III cities where the land is easily available, there needs to be some sort of a time regulation in completing the houses and that will probably make people more confident in investing more in houses and definitely with fall in interest rates, which is expected in the coming quarters, the demand for housing finance will also go up and with the government thrust on housing sector with fiscal concessions being increased for the housing sector in the last budget, we would like to grow at a faster rate but then as I told you, we would like to take a call because we need to mobilise the resources at affordable rates and then we also need to have manpower to do this business. So we would like to take a call on the entire spectrum of the business and then we will take a call about increasing the growth rate. But maintaining a 25-30 percent growth when the industry itself is expected to grow around 15-20 percent is a good growth rate to maintain.
Latha: Do you see more competition in your space probably from expected small banks or other players?
A: Competition is always welcome and the market is so huge, more new players are welcome there and as long as everybody is able to provide quality service, competition is welcome.
Sonia: Geographywise, where are you present the most in terms of where you disburse loans and also currently you are doing about Rs 500 crore per quarter in terms of loan disbursements, a couple of years, three-four years down the line, how much do you think your book could grow in terms of the absolute figure?
A: We expect to double our outstanding loan book from the present level in the next three years, , we would like to take it to about Rs 10,000 crore over the next three years. As far as geographic presence is concerned, yes, we have presence largely in the southern part of the country, 64 percent of our business comes from Tamil Nadu, another 12 percent comes from Karnataka, 12 percent from Andhra. The remaining is from the other states, outside the southern region we have 6 percent share of the book today. We would like to take it up slowly to higher levels.