Focus on high-yield loans, reducing funding cost: Can Fin

Can Fin Homes is focusing on increasing its high yielding loans such as commercial loans, Managing Director and Chief Executive Officer (CEO) C Ilango told CNBC-TV18. The NBFC’s net profit grew 69 percent to Rs 32.1 crore and net interest income rose to Rs 64 crore in the June quarter. Ilango expects the company’s earnings to remain stable in coming quarters. Gross non-performing assets (NPAs) are within control, Ilango said adding that asset quality will be maintained. Currently, NPAs at the end of June account for 0.26 percent of the loan book.The company is expanding its base from South India to other parts of the country. “During the last four years, we have expanded the number of locations from 41 to 135 and in the same ratio, we expanded our assets across the geography,” he said. Ilango said the company is looking to increase the capital raised through cheaper funding sources such as non-convertible debentures (NCDs) and commercial papers (CPs).Below is the transcript of C Ilango’s interview with CNBC-TV18's Anuj Singhal and Ekta Batra.Anuj: I was just going through your numbers for last quarter and they looked quite strong. Going forward, what is the kind of business outlook and do you think these numbers are sustainable?A: Yes, I am confident that this growth is sustainable. As of now, we are registering 35 percent growth on the book - that is top line and operating profit year-on-year (YoY) basis. We have registered 75 percent as at June-end. For this year, we are hopeful to maintain the same levels.Ekta: We understand that maybe Canara Bank is looking to increase its stake in the company. Is that true, and if so, by how much?A: No. In fact I have to have some idea on it. Official informations have not yet flown to us.Ekta: Tell us a little about your asset quality. It has been largely maintained all of these quarters. In fact, improved from 1.5 percent in terms of your gross Non-Performing Assets (NPA) in FY08. How do you actually sustain your asset quality? How do you sustain your gross Non-Performing Loans (NPL) at the levels that they are and what is maybe the trajectory that we can expect?A: Last year, our gross NPA percent was 0.17 and presently, it is 0.26. During the June quarter, it always happen in the period to come as it happened last year also. We will control down. We personally feel that 85 percent of our loans are given to the salaried class and 15 percent to the professionals and business class and our strong follow up mechanism and backend review mechanism on a day to day basis, we are maintaining this asset quality which has been our strength. Our managers are specifically assigned very particular task to see that it never increases the gross NPA level.Anuj: But that restricts your overall business because84 percent is to individuals and 75 percent of your loan book is in four southern states. Isn't that a bit of a risk?A: Traditionally, we are south based institution. Even when 75 percent was in south and 25 percent was in other than the south, we are expanding our branches. During last four years, we have expanded the number of locations from 41 to 135, but in the same ratio we expanded our assets across the geography. We don't find any undue risk in the days to come.Ekta: Tell us about your composition of funds, your cost of funds and hence what we can expect in terms of net interest margins going forward. You did around three percent in the previous quarter?A: We would like to mention that non-convertible debenture (NCD) and commercial papers (CP) we started raising only during the last year because. It was three percent as on June 2014. As on June 2015, it is around 32 percent. We would like to increase it to the level of 45-50 percent NCD and CP because of that we are able to reduce our cost of borrowing to the extent of 0.5 percent as reflected in our June 2015 results. We are hopeful to maintain the same in the days to come. Ekta: Your net interest margins was at around three odd percent. Since you do expect your NCD and CP funding to increase in terms of composition and cost of funds, do you think that you can eventually improve it further? If so, then by how much and by when?A: I do not want to comment on the numbers. We are reducing our cost of borrowing by increasing the composition of our funding basket through NCD and CP. Likewise, in the lending basket we still have another headroom of 10 percent under non-housing loan. Presently, our non-housing loan is 15 percent as against the ceiling of 25 percent. We are progressively increasing. Last year, it was 12 percent and now, we are planning for 18 percent. With increase in high yielding non-housing loans like loan against property (LAP), commercial housing loan and all we are confident that the interest spread, inter alia and the net interest income will increase.