State owned Housing and Urban Development Corporation or HUDCO launched their Rs 1,200 crore initial public offering (IPO) on May 8, 2017. As of this morning, the IPO has been subscribed a total of 0.63 times with over-subscription coming in from the retail end.
In an interview to CNBC-TV18, Ravi Kanth Medithi, CMD and Rakesh Kumar Arora, Director-Finance at HUDCO spoke about the IPO and the latest happenings in the company.
Below is the verbatim transcript of the interview.
Latha: What has been the average growth of your loan book considering that housing is such a key subject now?
Medithi: As on December 31, 2016 it is around Rs 37,000 crore, our loan book and year-on-year (YoY) growth we had around 7-10 percent on the disbursements which are mostly our concern.
Sonia: Is your disbursement likely to remain at 7-10 percent and any kind of growth of pace in disbursements?
Medithi: With the actionable programmes of the Government of India like Housing For All, Pradhan Mantri Awas Yojana and HUDCO being a very long experienced organisation, 47 year old experience and expertise as a techno financing government company, we are an integral part of all actionable, flagship programmes of Government of India and right now under the credit linked subsidy scheme we have been bestowed the role of central nodal agency for channelising the subsidy as well as we are a primary lending institution to give credit to individual loan seekers under HUDCO Niwas under retail financing wing.
Latha: Your spread has come down from 2.5 percent in 2014 to 1.94 on December 31. Is this a trend that will continue? Will you see fall in spreads?
Arora: No, It's not like that. There are specific circumstances. As we said we are a housing finance company, we are registered as a housing finance company and 31 percent of our book is housing finance and 69 percent is urban infrastructure. So from 2013 we are only lending to the government and government agencies.
There were certain loans which were given prior to 2013 to certain private sector projects where we joined them as a consortium partners. So those loans because the company did not participate in the cost overrun and time overrun because they were urban infrastructure projects and they were cost overruns and time overruns. Therefore, as per the regulations because we are following the title as housing bank regulation, so after 98 days we have to classify them as NPA if interest or repayment is not serviced. So once these accounts went as NPA the interest income on those particular projects stopped recognising, so by end of December 31, 2016 most of these accounts are already out. So this is the least that we are talking about, it's around 2.10 or 2 percent.
Sonia: Not just you loan growth but your profit has also been growing at a very slow pace, just 3-5 percent over the past three years. Will that be the pace of growth in future in your profits as well?
Arora: This was the phase when we need to make the provisions as per our old private sector loans. Most of the provisioning will get over by the end of FY18. Thereafter when the credit cost will come down from the present levels then automatically there will be growth in other areas.
Anuj: Your Draft Red Herring Prospectus (DRHP) says your NPA is 6.87 percent. Who owes you this money?
Medithi: Earlier when we were giving it to the private, we have lent as a part of the consortium lending to some power companies. At that time power companies were in boom and those unfortunately have turned out to be NPAs but in government sector it is 0.75 percent only and that is also a technical NPA but all these NPA provisioning is made and right now our net NPA is only 1.51. You can see from the document that has been made available to the public. So provisioning has been made for all those loans. They are not in government but in a couple of private companies.Latha: I agree with you but you say of the 6.87 percent only 0.7 percent is owed by state governments. How it is that state governments are paying you? Many of the state Discoms are not able to pay the banks. Don't you face such problems with the state governments? How are you managing? Is it that your state governments' money comes from some escrow accounts?
Medithi: I really appreciate you for this. We take a government guarantee from the state government, we take the Budget provision from the state government, we ensure that -suppose it is a corporate loaning we ensure the cash flows, escrow accounts. We will ask for all possible security measures, HUDCO always insists with all the expertise and the strong relation they have with the state governments.For entire interview, watch accompanying video...