Loan quality remained intact in Q4, saw improvement on demand side: Gruh Fin

Gruh Finance's business growth beats demonetisation concerns in Q4 with earnings coming in higher than estimates due to improvement in asset quality, which shows strength in balance sheet.

In an interview to CNBC-TV18, Sudhin Choksey, MD of Gruh Finance spoke about the results and his outlook for the company.

Below is the verbatim transcript of the interview.

Anuj: A lot of people thought that Q4 would be the real quarter to watch out for to assess any kind of demonetisation impact. Would it be fair to say that there was absolutely no impact at all?

A: By and large at the end of Q3 there was not much of an adverse impact as far as loan quality was concerned and same scenario is getting reflected in our Q4 result that quality of loan has certainly remained intact. Demand side, definitely we have seen positive improvement compared to the previous three quarters. Therefore, I hope government policies and Budget announcements, which they have done, has created very positive or conducive environment for demand to improve.

Latha: Could you tell us the impact of Pradhan Mantri Awas Yojana. Can we see a quantum leap? What is your usual average ticket size and how much do you think this new programme can make a difference in terms of asset under management (AUM) for you?

A: At the end of financial year our average ticket loan continues to be less than Rs 9 lakh, to be very precise it is Rs 8.83. So, we continue to focus on the segment where the cost of the property is less than Rs 14-15 lakh.

There have been two schemes in Pradhan Mantri Awas Yojana. One was announced at the beginning of the last financial year for economically weaker sections (EWS) and lower income group (LIG). We have contributed well there, around 20-25 percent of the subsidies which have been given out to the customers; Gruh has been one of the agencies which have been instrumental in that.

As regards middle income group-1 and 2 (MIG) which has been recently ruled out on March 11, I personally do not believe that this segment deserves a subsidy but it will help kick-start the real estate and it will certainly help the developers, who have been sitting on the inventory, if they qualify within the size parameter which government has stipulated. However, under this segment there are not many families who maybe first time buyers maybe a young couple, they will get the maximum benefit of MIG-1 and MIG-2.

Sonia: The story of the last quarter was the net interest margins that came in at 4.6 percent because of reduced borrowing cost. I do not have your net interest margins this time. What were they and have you seen any kind of expansion?

A: Net interest margins have grown in the excess of 25 percent. Our NIM ratio has improved marginally; it has gone up to around 4.2-4.3 and whatever the reduction in the cost of funds, we have passed on to our customers because rate war has broken out so we had to pass on to our customers to retain them.

Latha: So in the current and the next quarter that is first half, will your margins remain the same, will they be under pressure. Give us some idea of AUM growth in FY18?

A: As I mentioned earlier the environment is positive, after four-five years the government has fully pitched in with creating an environment in terms of rate of interest, in terms of policies, in terms of subsidies. So I can certainly look at much improved loan asset growth over the current financial year compared to the last year. I generally do not give guidance but it certainly looks better than the last financial year.