Kapil Wadhawan, CMD, Dewan Housing Finance Limited (DHFL), is extremely optimistic about the second half the year, saying that the first half is usually soft in terms of loan growth.
The company reported a stellar set of numbers for its second quarter ended September 30. It reported 28.8 percent jump in net profit at Rs 232.61 crore for the quarter ended September 30, helped by healthy growth in loan disbursements.
Loan sanctions and disbursements were Rs 8,437 crore and Rs 6,609 crore for the July-September quarter of the current fiscal, up 10 percent and 32 percent respectively, over the corresponding period of the previous financial year.
Wadhawan said going forward, the company is focused on reducing its costs and bringing gross non-performing assets (NPAs) down to the levels of 0.7-0.75 percent in FY17. There was 20 basis point reduction in cost of funding from March to September on a weighted average basis, said Wadhawan.
According to him, the weighted average cost of funds would be at 9 percent in FY17 versus 9.56 percent in FY16. The gross NPAs for the quarter stood at 0.96 percent amounting to Rs 630 crore.
Below is the transcript of Kapil Wadhawan’s interview to Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Sonia: It was a good disbursement growth of almost 32 percent that you saw in this quarter. On expected lines, I guess, but what do the next couple of quarters look like?
A: Keeping in line with the trend, we are extremely optimistic about the next two quarters as well. As you already know, the first two quarters, first half of the year usually is a slow half year. So, we are expecting the next two quarters to be in line with trends.
Latha: A little more numbers with respect to the current quarter itself. What did you do by way of spreads or margins and how did they compare with the previous quarter or year ago quarter?
A: We have been continuously focusing on not just the interest revenue, but more so, on the cost reduction as well. As you know, we did two large fund raisings as well by way of public issuance of non-convertible debentures (NCD). Even though the full benefit of the cost reduction on account of that money having being raised, have not been factored in, in this quarter. But over the next couple of quarters, we are likely to see a good amount of traction.
Latha: Can you put some numbers to it? How much did the cost of funds go down this quarter itself? More importantly, how much did the margins improve if at all?
A: On the cost of funding side, from March 31 to September 30, we have seen at least a 20 plus basis point reduction in our overall cost of funding and that is on a weighted average basis. At the same time, the net interest income on the back of lending into in smaller towns and cities in the country, that has moved up significantly to 21 odd percent. There have been certain measures on account of cost efficiency as well, bringing down the operational cost, the people cost. So, all that has led to a strong impetus during this quarter. Obviously, notwithstanding a strong focus on Tier-II, Tier-III which has led to higher sanctions and disbursements.
Sonia: So, on your disbursements itself, yes, you are sitting on a base of almost around Rs 6,600 crore as of Q2. What could the growth be by the end of the fiscal?
A: We are looking at a 20 percent growth and this is in line with what we had mentioned in the first quarter itself. Now, obviously interest rates have come down, we have passed on and probably we are the only company to have actually passed on, in the housing finance space, some of the benefit of that to our existing customers as well as reduced our rates for new customers as well.
Latha: This is a crowded space is it not? So, if your cost falls by 20 basis points, will your yield on your loans also fall by a similar amount?
A: There is always a timelag. It is never going to be that cost of funding reduction will immediately . So, it will take some time.
Latha: I am leading you to giving me a margin guidance.
A: We have improved on our net interest margin (NIM), it is almost three percent plus now and we are very hopeful that this three percent will be maintained over the next two quarters as well, maybe move up, inch up by another 5-7 basis points.
Latha: And what is the extent of loans you have against property?
A: Loan against property (LAP) is not a very significant percentage, but it is about 12-13 percent of our total portfolio.
Latha: Any trouble in that? What is the asset quality?
A: Asset quality all round has been very good and below 1 percent is our gross non-performing asset (NPA). We hope to actually better this by March 31 and bring it down to almost 0.7 or 0.75 percent, the total outstanding.
Sonia: That is good to know because there are signs of early stress visible in the LAP book, especially for some of the other companies or your peers rather. Do you think things could get worse for the industry?
A: Honestly, not. There is a big difference between what we do on the LAP as well as the others. We have been in this business for 30 plus years. So, there is a very cautious approach towards going out and lending towards property itself which is not for end use. But we have been able to maintain a very strong asset quality on all counts whether it is project lending, home loans or project LAP.
Latha: Can you just give me the NPA in the LAP category?
A: It is all below 1 percent. Just a small addition here and this was primarily on account of the NCD raising that we did of Rs 14,000 crore. Interestingly, within this quarter itself, within the last couple of weeks, we have been able to reprice our bank liabilities downwards quite significantly and almost 50 percent of our Rs 30,000 crore of bank liabilities have been priced downwards with an average of almost 60-65 basis points.
Latha: That is what I thought you will come with a big number. You said that your cost of funds fell by 20 basis points. In understand because it will be prospective. So, for FY17 how much might average cost of money fall by and for FY18, what is your guess?
A: We want to reduce it as much as possible. It is difficult to put a number down, but yes, the way the cost of funding has been coming down, we anticipate that the weighted average cost of money by March 31 will be about 9 percent as compared to 9.56 percent in the previous year.