Aim to achieve 20-25% growth in FY16: Indiabulls Hsg Fin

After raising Rs 4000 crore through qualified institutional placement (QIP) in September, the company is done with capital raising for the next 4-5 years assuming the company grows the book between 25-30% and profits are between 20-25%, said, Gagan Banga, VC & MD, Indiabulls Housing Finance.The company in September successfully raised Rs 3,997 crore by allotting 56.93 million shares to qualified institutional buyers (QIBs). The company issued shares at price of Rs 702 per share. The key objective of the company is to achieve growth rate in the range of 20-25% across all financial parameters that they have seen over the last five-six years and the raised funds would help capital growth and reduce cost of funds. However, credit growth is expected to be higher than 20-25%, he added.The QIP saw dilution of little over 12 percent with some of the largest financial institution participation, said Banga. Moreover, it has taken the capital adequacy ratio to 23-24 percent as of September 30 but now with the RBI reducing the risk rates on home loan markets, the CAR would go up to around 30 percent by end of third quarter.Below is the verbatim transcript of the interview.. Ekta: A qualified institutional placement (QIP) where you have raised close to around Rs 4,000 crore. Can you tell us what the current dilution is, where your tier I will be and how the funds will be used as well as what kind of interest did you see from Foreign Institutional Investors (FII) and Domestic Institutional Investors (DII)?

A: Yes, it turned out to be a very high quality issue. Some of the world's largest financial institutions have come in to the issue and we had actually started off thinking that we would go down and raise about USD 400-500 million but given the quality of demand that we had from these very large financial investors some of the largest financial institutions investing into India we actually upped the deal to about USD 600 million. We diluted just a little over 12 percent of the company and this has taken the capital adequacy levels to about 23-24 percent as of September 30. Those would further get augmented by the fact that this last week Reserve Bank of India (RBI) has also reduced risk weights on the home loan market. So, my sense is that we would be almost 30 percent capital adequacy by the end of this quarter.Mangalam: In view of the increased ammunition that you have got on your war chest via this QIP and also the capital that has been freed up after RBI has reduced risk weighed assets, what kind of incremental disbursals do you see and what kind of off take growth can we expect?A: So, for the last 24 quarters now, which is six years the company has been growing at a very steady pace of 20-25 percent. We have also been guiding that one of the key objectives of the organization going forward is to replicate over the next 5-6 years what we have achieved, which is the steady 20-25 percent growth across all financial parameters. One of the key objectives of doing this QIP was to give us growth capital which will then help us further reduce our cost of funds and achieve the larger objectives of the organization and maximize Return on Equity (RoE).So, my sense is that over the course of foreseeable future and definitely for this financial year. We will operate within the guided range of 20-25 percent. Credit growth could well be slightly ahead of the guided range and profits and other related parameters like Net Interest Income (NII) growth etc would all come within 20-25 percent.Ekta: So for how long do you not need any capital? For how many years now?A: My sense is the next 4-5 years we are sorted as far as capital is concerned. That is assuming that we will continue to grow our book between 25-30 percent and profits between 20-25 percent and will stick to our long term dividend payout policy of 50 percent of profits. With these assumptions, we have capital for about five years.Ekta: You also cut base rates by 25 basis points, your lending rates have come down by 25 basis points. Are you seeing any incremental pickup in the lending segment?A: So what we have been trying to do over the last five years is rule out any risk arbitrage that we may take up by charging a premium to the customer, we are trying to lend to the most prime customer by charging him rates which are amongst the most competitive in the respective lending programs that we run. So in home loans, we try and price ourselves to the leaders, similarly in loans against property the 2-3 other large participants we try and price ourselves in line with those and what we have had an advantage is that largely because of the upgrade in credit ratings that the company receives and also the changing in our borrowing profile that we have been able to achieve over the last 12-15 months.Our costs have actually come down quite significantly, we have used some of those reduced costs and enhanced margins to create counter cyclical buffers and for the rest we have tried in the past also to pass on to the customer, a few months ago we had done a 20 basis points cut and yet again we have done a 25 basis points cut, our book growth is slightly ahead of what we had planned originally for the year, so we will for the full year go to about 25-30percent as against the original budget of 20-25 percent.Mangalam: You did indicate that your Cost of Capital (COC) has come down. So could you quantify that reduction in COC and also could you give us a sense of how your net interest margins (NIM) will pan out going forward?A: So for a company as well capitalized as us the more relevant number is spread as against NIM. We have tried to defend spreads of between 300-325 basis points. As we speak, we are at the higher end of that range and we continue to run with spreads of close to about 325 basis points which over the foreseeable future, we will continue to maintain.As far as, overall competitive pressures in the market is concerned, market rates in home loans have come down over the last one year or so by about 60 basis points and in loans against property rates are down by about a 100 points. We have actually had a cost of fund reduction a little over a hundred basis points. So blended between home loans and Loans Against Property (LAP) we have seen a little bit of spread expansion.Ekta: How does the RBI rationalizing the risk weighed and Loan to Value (LTV) on individual housing loans change the game for you and is it applicable to Non Banking Financial Companies (NBFC) or do you require National Housing Bank (NHB) approval?A: It would in due course of time get approved by NHB. NHB generally on risk weights does take a cue from RBI, so without trying to nudge them to do it, it is just an assumption that they would do it and generally risk weights and efficiency around risk weights over a period of time, reduces the effective cost for the borrower because lesser of capital has to be deployed without compromising on ROE.In our case because we are very well capitalized and we already have growth capital, we anyways had the ammunition of being able to reduce our rates, what it does for us is prospectively increase the eventual ROE that this business will be generating, which one is very confident of being able to continue to generate north of 25 percent of ROE.