SEBI move to lower borrowing cost up to 25bps: LIC Housing

After the Securities and Exchange Board of India (SEBI) allowed debt-oriented mutual funds to invest up to 10 percent of their net assets in housing finance companies, VK Sharma, Director & Chief Executive, LIC Housing Finance believes the companies will now get additional funding of Rs 50,000 crore. According to him, the SEBI move will also help to reduce borrowing cost by up to 25 basis points. He is also hopeful of improving the company's NIMs to 2.5% in the second half of the current fiscal.

Going ahead, LIC Housing Finance is planning to complete its QIP by November, post its second quarter results, added Sharma. Here is the edited transcript of the interview on CNBC-TV18. Q: What do you think is the net impact of this move, how much more availability of credit and lower cost of credit can you expect from the debt mutual funds now?
A: It is a well structured move by SEBI which will help market, housing finance companies (HFC) as well as mutual funds along with the de-risking mutual funds. Roughly, it will give a room of Rs 150,000 crore for all debt oriented mutual funds. As far as HFCs are concerned, I will talk about LIC Mutual Fund.
We have an exposure of about Rs 6000 crore. By increasing this 10 percent, it will give us a leverage of around Rs 50,000 crore which can be taken from debt oriented funds taken along with other HFCs. Simultaneously, it has helped mutual funds in putting their fund in safe investments like HFCs because inherently HFCs are safer than NBFCs. Q: Would it also have a significant impact on the cost of funds or bring down your cost of funds or is it just extra availability through the mutual fund route?
A: Certainly, because normally we take this fund at around 9.5 percent or so whereas if we take it from the banks and others, it will be more than 10 percent. So it is going to soften the borrowing cost which will ultimately soften the interest rates for consumers. Q: Would you say that the gain from going through the debt mutual fund route would be in the vicinity of 50 bps on your cost of funds or more?
A: I think it will be between 10 and 25 bps.
_PAGEBREAK_ Q: Your net interest margins had been under a bit of pressure till the previous quarter. Do you think with this move and with the kind of improvements that you were talking about earlier, your NIMs have bottomed out?
A: Yes I will say that this quarter is the end of the cycle because we have been very cautious on the developer side. Our NIM has been coming down despite our healthy growth and very strong NPAs. But with this softening of interest rates, certainly it is going to be the end of the cycle and in future we think it will slowly increase. Q: Where can it go up to because your NIMs had gone down to 2.18 percent in the previous quarter? When do you see it starting to move up again and to what kind of levels eventually?
A: Coming 6 months we are confident that it will go up. Our outlook is that it will be somewhere around 2.25-2.5 percent and we are hopeful that in the next six months it will come up. Q: You have also approved QIP, can you give us an update on that whether you are still in the market to do a QIP in October for Rs 1200 crore?
A: Yes, we have started the process and we have shortlisted the merchant bankers also. But, the entire process as I understand will take roughly 1.5 months or so. Maybe it will be complete in October or November. Of course we will do this QIP after our Q2 results. Q: What would be the quantum of money, have you decided that, is that final?
A: We have decided about 4.6 crore shares. The amount will depend upon the market price at that point of time. I cannot say about the quantum of money. Everyday the price of the company varies and accordingly, the estimated amount varies. Q: How is the business doing now, what kind of loan growth are you seeing right now? Has there been any kind of pick up?
A: We have healthy retail loan growth and certainly, we will be better than the outlook of 20 percent. Though we have been cautious on developer loans, but slowly we have started giving and our priority is to support those who have incomplete projects and where it can be closed early. But, we are still cautious on that side. However, we are very positive on the overall growth rate.
More to come.