Bajaj Housing Finance’s primary capital from IPO will be used for organic growth, says MD Atul Jain

Edited excerpts:

How do you see the market dynamics for the HFC space as such evolved in terms of a proportion between LAP and mortgages?

As a licensed holder of a housing finance company, there is a regulatory construct that over 50 percent of your total assets have to be individual home loans, and then over 60 percent of your total assets have to be residential. So that construct has to be followed if you are registered as a housing finance company, LAP cannot be in that sense higher than the home loan portion for a registered HFC. That is a construct we follow.

Because we are a housing finance company, home loan becomes a natural emphasize because of a regulatory and risk construct because at the end of the day, each company operates in the risk and risk-return construct which it defines itself. So if you define yourself as a, let us say, slightly higher risk company, you will probably focus or leverage more on LAP. There are no rights or wrongs, it is a point of where you position yourself.

So every company has a space to choose. Our space or what we are looking to build is towards a lower end of the risk profile. So that is where the choice of the customer is likely to be more towards lower risk probabilities rather than higher-risk probabilities as a combination.

Then in the mortgage segment, there are four large lines of activity which are home loans, loan against property, construction finance and lease rental discounting. We would want to be present in all segments to be able to leverage whatever is best suitable for the company because at a point of time, there can be either return compromise or a risk compromise.

If you are present only in one segment, it holds back your ability to move around faster. That is where we will be there.

On the banking correspondence side, that is a different business model. Since we are largely in the prime space, it is not the model that we follow. Affordable companies would operate there. But as of today, a dominant part of the book, not that we are not present in the segment is largely on the developer side, homes being sold or through a distribution partner or through our direct channels.

Your cost of funds has gone up significantly, is company doing anything g to bring it down?

The cost of funds is a function of the market in which it is available. So the cost of funds in the market has gone up because it was led by interventions in 2022-23 and there has been a flow-through impact which always happens. There is a reference which gets tightened by Reserve Bank at a point of time or loosened but there is a flow through which takes a bit of a time.

So the cost of funds took time for the market to flow through and that is what is reflected what you are seeing. But whatever tightening has happened it has completely flown through. You look at banks, they have also been passing a increase in the cost of funds increase even in last two-three months as well.

All the public sector banks have increased their MCLRs in the last two-three months. So there is a lag impact of the cost of funds and we are a part of the market. The money that is available in the market, given our rating, our standing and the comfort of lenders. We are always better off than or equivalent to the best credit available.

We are part of the market. We can't be very different from the market. There is a narrow space and within in that market space, we will always be towards at better end.

So the lag through impact has flown through. Our balance sheet is mostly floating. Liabilities are a combination of floating and a fixed.

Now, if there is a further tightening of the cost of funds, which is unlikely, but if it happens then you will see the increase. We will stabilize there and depending on regulatory actions, because what we are reading in newspapers is that it is likely to be the downward cycle and if that happens, you will see it going down.

Will you using these funds from IPO for inorganic growth or for organic?

We require capital for our growth, so the primary capital will go towards meeting the growth requirement of the company. As of today, we have been focusing only on organic and we'll continue to focus on it in the medium term. There's no inorganic growth being considered. What we have also clearly set out in the RHP is that, the funds are going to be used for the regular business and growth of the company in the normal course of time.

So inorganic, in the short to medium term is not a consideration factor because the market size is very large and we are very small compared to its overall market size.

Will you borrow less from the market after the IPO because you will have liquidity for the growth of the company?

Capital is not going to determine the borrowing mix because it determines your capital adequacy ratios and leverage ratios for a point of time it gives you a release. But , if we look at it last year, the absolute amount of a growth versus the capital we are raising is not changing the mix and capital in any case is not from point of view of the liability mix.

Between banks, and the money market, which are the two largest sources of money available for us because we are not a non-deposit taking company, we take a view at the point of a time depending upon the tenure, duration and cost optimization. We believe we are reasonably diversified because you require a mix of both. You require a mix of a money market and your banks and National Housing Bank for a refinance institution.

In our assessment, we are rightfully balanced as of today. As we go forward, depending on the opportunity and the differential of a cost at a point of time because there is no permanent differential which happens between a money market and there, we will choose what is better for the company. A variation of 4-5% of the mix can always happen based on what is most suitable.