Gagan Banga, Vice Chairman of Indiabulls Housing Finance says that the company is trying to initiate product mix change.
Indiabulls Housing Finance is trying to increase its market share in home loan book from the current 50 percent to 60 percent, Gagan Banga, Vice Chairman of the company told CNBC-TV18.
While the competition in housing space has increased, Banga said that their main competitor are private banks. Public sector banks are suffering from non-performing loan issues and most of foreign banks are cutting business in India, he added.
The company is trying to initiate product mix change, he added. The pricing power, he said, has improved considerable in last 12-18 months.
Discussing the spreads, Banga said that the company will maintain spreads between 300-325 basis points (bps) over next three years.
Below is the verbatim transcript of Gagan Banga's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: Yields in the last fortnight or so have moved from 8 percent to 7.7 percent or thereabouts. For Indiabulls Housing Finance, what kind of impact can it have and what kind of impact it can have on your margins as well?
A: Incrementally we have been guiding saying that we would be looking at on an incremental basis doing about 70-80 percent of our borrowing through the bond market route.
However, for the full year we would be around those levels, so 20-30 bps movement would have on an incremental basis something like 25 bps points impact on our cost. In parallel as we borrow more from the bond market, we are trying to also increase proportion of home loans in our overall asset mix.
So we are trying to sustain margins at the given levels which is 300-325 bps points while focusing on increasing our market share in the overall home loan book and also increasing that as a percentage of our overall assets.
Nigel: Your current borrowing from the bond market is how much. 30-32 percent comes from the bond market. Are you looking to push that up to around 35 percent?
A: 32 percent or so on stock basis and close to about 75 percent on incremental basis is from the bond market. Our stated goal is that by FY18, from non-bank sources, which includes both bonds as well as portfolio sell downs, we should have close to about 60 percent of our borrowings coming from non-bank sources. Almost all of the non-bank sources, the pricing is a function of where government securities (Gsec) are.
Reema: You indicated that you would like to maintain spreads in a range of 300-325 bps, right?
Reema: But isn't that lower than 340 bps type of spreads that you would enjoy exactly a year ago. Are we now entering a phase when spreads for a company like yours could be trending lower maybe on account of increased competition?
A: Our pricing power over the course of the last 12-18 months has increased. We have been guiding through the course of fiscal '15-16 that we will have a pricing range of around 300-325 bps. We ended December '15 at 320 bps and through the course of the next three years, we intent to sustain 300-325 bps. The company in parallel is also trying to ensure an asset mix change.
So we are trying to grow our home loans on an incremental basis from 50 percent of our lending to about 60 percent of our lending and home loan is on a return on asset product, a very rewarding product. On a spread basis it is a smaller spread business but because of lower cost to income and lower credit cost on return on asset. It neutralises the whole pace.
Given all of the migration that we are trying to achieve on the asset and the liability side, I think we should be at the higher end of our guided range of 300-325 bps. As we change on our liability side, our pricing power is very significantly improving.
Reema: You said you want to increase home loans as a percentage of your portfolio to 60 percent versus the current 50 percent. By when will you be able to achieve it?
A: By 2018.
Nigel: There is a lot of market concern over the past fortnight; they are talking about overall growth for all housing finance companies. How confident are you that you could sustain the current growth rate and could you give us some outlook for the next couple of years?
A: The mortgage market through the course of FY14 and 15 has compounded at 18 percent within which housing finance companies have gained market share over banks and have compounded at about 22-23 percent. We are growing at a shade slightly faster to average housing finance companies which include some state owned finance companies and smaller housing finance companies. So our pace of growth is closer to 25 percent and compounding at 25 percent is extremely doable given the fact that on floor basis we have about 6 percent market share. On stock basis we have about 3.5 percent market share and with all the investments that we have done in people, branches and technology, we are already in capacity to increase our market share to about 10 percent. Therefore, given the investments and given how we are, today being able to finance ourselves without compromising on our spreads, I think we should be able to increase our market share and continue to compound little north of 25 percent on book and between 20 percent and 25 percent on profits.
Reema: You are saying that market concerned about increased competition especially from the banking space in the home loan market is overstated for the industry as well as for your company?
A: It is because the market reflects to numbers and the fact is that banks are losing market share and there are broadly three pockets of banks as they operate in India. There are foreign banks which we all know; most of these foreign banks are either in shutdown mode right now as far as their India balance sheet is concerned and a few of them are also exiting. I am not aware of even one of them looking at increasing market share or increasing their book in India, on both corporate as well as the retail side.
The state owned banks are fighting the non-performing asset (NPA) battle and therefore they are clearly not focused. There could be a lot of decibels around what they want to do in the home loan piece but if you look at how our balance sheet is. The balance sheet will end at about Rs 75,000-76,0000 crore and bulk of it is retail. We already have more retail assets than two public sector banks in the country and these public sector banks generally will have balance sheets of Rs 7-10 lakh crore, but we are larger on retail asset side as far as home loans and the entire retail gamut is concerned for most of these banks. So state owned banks are slow, foreign banks are on exit mode. The only guys who are active in the market are the private banks and we are happy to compete with them.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.