Expect loan book to grow 25-30% in FY13: Dewan Housing

"We have always maintained close to 3% interest margin, 10-15 basis points here or there. Over the next two quarters it is a function of our cost of funding," he added.

Further, Wadhawan expects the company's loan book to grow at the rate of 25-30% in FY13.

Below is the edited transcript of Wadhawan’s interview with CNBC-TV18.

Q: You saw decent growth in NIIs. With NIMs at 2.8% do you see them coming under pressure in the months to come?

A: Honestly, it has been before the relaxation in the repo rate which happened two quarters earlier. It was18 months of unprecedented increases in interest rates and surely that led to a depreciation in the net interest margins.

We have always maintained close to 3% interest margin, 10-15 basis points here or there. Over the next two quarters it is a function of our cost of funding. On the lending side we do not see too much of an issue going out and even charging 25 to 50 basis points primarily because of the segment of the market that we cater to.

But cost of funding needs to come down. The way the RBI has acted on maintaining the current levels of interest rates in its monetary policy, I don’t see interest rates coming down till the time the RBI intervenes and brings down or makes a cut in interest rates.

Q: You are saying that 2.8% will be maintained?

A: Absolutely.

Q: What exactly was your cost of funds this quarter? Can you give us a comparison on quarter on quarter basis and what you expect in FY13 because you did mention there is pressure on that?

A: The levels have been maintained both at the corresponding quarter level as well as the preceding quarter. We have been able to maintain 2.8% margin, which is fairly consistent. Going forward, it’s a function of how the overall liquidity in the market behaves and how inclined RBI is towards making a rate cut.

Q: Your disbursements have risen 72% year on year, sanctions 64%. How much of this was to developer companies and how much of it was mortgage loans?

A: We have been predominantly a housing finance company catering to the retail, lower and the middle income segment. The real estate or developer exposure in the DHFL books is very small. In percentage terms it is about 5.5% of the total outstanding of close to Rs 23,000 of assets under management. Predominantly, most of this growth has come from tier two-tier three markets and loans up to Rs 10 lakh.

Q: There are some reports of brokerage post the numbers which are now showing a bit of concern with regards to asset quality for the company in particular because you had provisions of around Rs 15 crore this time around compared to negative provisions in the previous quarter. Just take us through any sort of niggling concerns in terms of asset quality that you are seeing at this point in time and how would you expect FY13 to pan out on the same?

A: We have been maintaining a gross net performing asset number of below 1% and that continuous to be even in quarter one. These are additional provisions primarily because we have increased our provisioning coverage, which honestly is a healthy sign. Our provisioning coverage today stands at 86%.

The net NPA is about 0.13% so there are no concerns primarily on the asset quality. The collection efficiency also continuous to be extremely strong in mid-nineties. That is a concern which we do not have as a housing finance.

Q: How aggressive would you be on the project loan business or the project loan disbursement part because that is around 6% of your loan book. There is an expectation that it might rise to 10% hence that might be of an asset quality concern would you concur?

A: I wouldn’t say so. Primarily because we do not have large exposures- our exposures to real estate developers are in tier II Tier III markets. The average loan size there is significantly small. It has been modeled so that there is not too much of risk associated with that kind of lending.

Going forward, we have been very selective in the choice of the developers that we lend our money to. Without moving away from the target segment even if this exposure moves up by a few hundred basis points it is fairly robust and safe.

Q: What is the kind of loan growth you are expecting to do in the current year as well what will this State Bank of India (SBI) challenge mean to you? Do you see the industry start trying to match SBI’s rate. Will you have to come down to be able to match them?

A: I do not think that we would want to moderate our interest rates just to challenge SBI. SBI is a behemoth in any case. Our average loan size is close to 10 lakh which effectively qualifies for everything under priority sector.

We will continue to focus on our tier two-tier three locations; we are already present in 130 odd locations through our offices plus 100 odd service centers and camps.

Q: What is the loan growth number you are looking at?

A: We are looking at moderating this growth to anywhere between 25-30%. Comparing the Q1 numbers with the corresponding quarter of the last financial year is not wise. We are looking at 25-30% growth rate for the financial year.