Retail, NII plus fee income boosted growth: Future Capital

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Retail, NII plus fee income boosted growth: Future Capital

CMD of Future Capital holdings, V Vaidyanathan accounts the growth in net profit to the rise in net interest income (NII) plus fee and retail loan book.

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For the quartet gone by, Future Capital reported a more than three-fold increase in its net profit at Rs, up 248% over the corresponding period of last year and chairman and managing director V Vaidyanathan accounts this growth to the rise in net interest income (NII) plus fee.

"Last year this time our NII plus fees totaled up to Rs 70 crore against Rs 170 crore this year. So we feel the core income is growing very well and that is what we are quite happy about," he said exclusively to CNBC-TV18. He goes on to say that a large part of the company's income came from the retail side.

Going forward, Vaidyanathan expects to see the gold loan book grow to Rs 250-300 crore by the year end.

Below is an edited transcript of his interview with Latha Venkatesh and Sonia Shenoy. Also watch the accompanying video.

Q: Take us through your performance. Which were the segments that did well?

A: If you see the overall level of profitability gone up over the last year or last quarter, it is actually been driven by a simple net interest income (NII) plus fees. Same time last year we had an NII plus fees, which is operating income, of Rs 70 crore. This year it is 170 crore so we feel the core income is growing very well and that is what we are quite happy about.

As far as which line of business is growing very well, the big growth is coming from retail segment. Last year in March, our retail book was Rs 300 crore and this year its Rs 1,700 crore. So big growth has come and I would imagine a good part of income certainly came from the retail side.

Q: Much less in terms of provision and write-offs, which is very positive in an environment like this.

A: The core credit loss in the Q1 also was somewhat similar close to about Rs 3-4 crore. The number that you see of Rs 17 crore is because of a one time provision we have to do for certain investments which we believe were impaired. So if you knock that off, it's a pretty stable performance of Rs 3-4 crore credit loss quarter on quarter which is something that's build into our plan. Even out of that, a portion counts because of standard as a provisioning because the book is growing.

Q: What kind of loan book growth do you expect to see in the second half of the fiscal?

A: We are happy that we have grown loan book of about 3,800 crore now. The important thing is getting some critical mass or scale because below a certain scale you cannot operate in retail business. On overall sense our loan book has grown from Rs 2,000 crore to Rs 3,400 crore.

I think about three-four months ago I had given a guidance of about Rs 5,000 crore for the end of the year. I would say somewhere about Rs 4,800-4,900 crore is where we are heading towards. The reason why I keep is flexible is because the credit situation in India has slowed down and to some extent it does reflect in our numbers as well. But it's not a big change from where we are now.

Q: How expensive is credit becoming for you since I would assume that you would be tapping the wholesale markets as well as bank lending. What kind of a margin can you expect in the second half?

A: We are significant borrowers from the financial system, both banking system as well as NCDs because our book is growing. We are finding that our cost of funds is 11.2% and we are getting margin of close to about 5% and that's quite stable. If you take the NII of the company last year same time, it was 4.6%. So that increased from 4.6 to 5% but sequentially quarter on quarter it's pretty much flat. From here, I would say that interest rates have peaked now and that would be a fair guess to have from here.

Q: Where do you see the maximum growth? Is it in gold loans, is it in pledged shares or is margin funding improving? If you could give us a sense of how the next six months might look?

A: Of the Rs 3,800 crore loan book that we have Rs 2,100 crore is wholesale side and about Rs 1,700 crore is retail side. Of the retail side, 1,600 crore is mortgage lending largely to SMEs and that is one area that we are focusing on. You can call it the bread and butter of the company because its growing well and it behaves stable over the economic cycles.

The second business which is growing well for us is the gold loan business. We started it from a scratch six months ago and I am happy to tell you that we have reached about Rs 90 crore. We expect year end numbers to be in the zone of about Rs 250-300 crore.

As far as the year end is concerned we think of the Rs 4,800 crore odd that we expect to have, let me say 50% will be wholesale which is about Rs 2,400 crore and another Rs 2,400 crore will be retail. So if you see last year same time, about 18% of our loan book was retail and 82% was wholesale. We are already 43% retail which is a significant increase and lends more stability because rating agencies and analysts look at retail a little more benign in this market conditions because of the stability of the book.