VK Sharma, MD & CEO, LIC Housing Finance told CNBC-TV18 that their main aim is to keep their margins around 2.5 percent and their growth above 20 percent. To achieve this they have made a strategic shift in their business plans, he added.
The country's second largest housing finance company, LIC Housing Finance reported a 24 percent year-on-year rise in its fourth quarter (January - March) net profit at Rs 316 crore.
To help boost their margins and net profits the company has created four segments of business; retail business, non-core business, aggressive plans for developers’ loans and fee based income.
“Our overall outlook is that we will be growing more than 20 percent but the strategic shift is primarily to keep a sustained profitable growth in future,” stated Sharma.
Moreover, he said improvement in their Net Interest Income (NII) was on back of their blockbuster product for women borrowers called “‘Bhagyalakshmi’
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Your margins improved substantially and your cost of money fell. Can you throw some light on that?
A: Lower cost of fund has been primarily because of the softening of the interest rate in the market and we have tried to shift our bank borrowings to non-convertible debentures (NCDs). This is the primary reason that the cost of fund has gone down.
Increase in margin was because of three reasons. One lower cost of fund. Two, we have pulled back some of the provisions because we were able to revive some non-performing assets (NPAs) of Q3 and bring it back to the standard assets. Three, the fixed rate loans were converted into floating rate during the quarter.
Q: How will the margins do in the current quarter and the next?
A: Traditionally, the Q1 margins have always remained subdued although I don't know the reason behind it. However, my expectation is that margins will not come down from here. For the year, we are expecting to be somewhere around 2.4-2.5 percent.
Q: There has been an improvement in your net interest income (NII) and net profit. They have grown by 25 percent in the Q4 against only 8 percent in Q3? What led to this kind of improvement in growth rates?
A: One of the miracles was the introduction of our blockbuster product for women borrowers. We had done an analysis of our existing loan book and found that only about 17 percent of the borrowers are women. All those borrowers are virtually non-delinquent. So we introduced the scheme ‘Bhagyalakshmi’ for women borrowers with a slightly preferential credit benefit to them and it turned out to be a blockbuster product for us.
We have done about Rs 3100 crore in about three months and that primarily helped Q4, NIM and net profit.
Q: How much of your loans go to developers and how much goes to home loan borrowers?
A: Loans to developers is less than 4 percent. The ration is 97 percent home loan borrowers and around 3 percent loans to developers.
We have been very selective and cautious in loan to developers. In FY13 we sanctioned roughly about Rs 1,100 crore.
Our residential loan segment growth has been more than 24 percent. The repayment of earlier loans has been good and so the book has come down to some extent.
However, this year we plan to double the developer’s loan book because now we have put the system in place so it has started flowing in.
Q: What has led to the improvement in asset quality and the fall in non-performing loans (NPLs)?
A: In retail asset segment, our NPA has come down; even in volume terms it is 0.37 percent only that is the gross NPA. We have very strong system in that area. There is visibility of a slight increase in volumes for the current quarter in the total gross NPA because two loans of developer segment have gone NPA.
We are hopeful that we will bring them back this quarter. If it comes back then our gross NPA will come down further. However otherwise there is no likelihood of increasing the gross NPA further.
Q: Will your NII and net profit continue to grow by 25 percent that we saw in Q4 throughout FY14 as well?
A: This year we have made a strategic shift in our business plan. Our overall outlook is that we will be growing more than 20 percent but the strategic shift is primarily to keep a sustained profitable growth in future.
We have created four segments of business, one is our regular retail business, non-core business, aggressive plans for developers’ loan and some fee based income, which we are trying to increase. So, our overall aim is keep our margins around 2.5 percent.