Indiabulls Housing Finance hopes to capitalise on the upcoming festive season to boost its performance. The housing finance entity is also hopeful to get a banking license too.
Indiabulls Housing Finance is confident of cashing in during the festive season, which will positively impact on its earnings in the subsequent quarters. Good rains will boost demand from Tier II and III markets, Gagan Banga, its MD and CEO tells CNBC-TV18 in an interview.
The housing finance major is hopeful of getting a banking licence on the back of stable asset quality. The company's structure is in strict compliance with the Reserve Bank’s parameters, Banga adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: We know that there will be about seven banking licenses. Preference will be given to the current non-banking financial companies (NBFCs). How confident would you be regarding your banking application?
A: The finance minister had later clarified that there would be several banking licenses. Being a housing finance company, and having built a fairly large and stable balance sheet, our chances are as good as anyone else’s. We have to go through the procedure.
We have built a structure which is in strict compliance with what Reserve Bank of India (RBI) desired. We have a track record of the last ten years of being listed and being profitable of paying out fairly good dividends.
On the operation side, the business has been growing at a compounded annual growth rate (CAGR) over the last five years of 26 percent on the loan assets, the profits have been growing at about 20 percent.
Last year, the company had made Rs 1,266 crore of profits. In Q1, we made Rs 351 crore of profits. We have guided for the full year to be growing by 20-25 percent.
Asset quality has also stood the test of the credit crisis period of 2008. Overall, the track record is favourable. The structure is right there but it is for the decision makers to decide if our model fits in their agenda.
Q: You have also recently cut the home loan rates by 15 bps just for the festive season up until November 30. What is the growth rate for the festive season so in the October to December quarter too? Will there be any margin impact?
A: The second half of the financial year is generally a lot busier than the first half given the festive season. The auspicious period to buy homes also starts off with the Navratra. There is a logical pick up of about 20-25 percent over the first half.
This year, the pick up could be slightly more given the good rains and tier II, tier III type of markets tend to benefit a lot more. Our focus segment is below Rs 25 lakh home loan segment where typically homes are getting transacted at 32-35 lakh levels.
The confidence level there does get to a little extent an uptick because of the monsoons and how inflation and other trends play out. Over the first half, we will see about 20-25 percent uptick in demand.
Q: You are not impacted too much by changes in the short-term rates. How is your cost of funds shaping up over last few days as the cut in marginal standing facility (MSF) couldn’t have made any big difference to you. Over the last two-three months, how is cost of funding changed?
A: We are fortunate that we had taken some hard decisions in the period 2008 and 2010; one of which was to dramatically reduce the lending on short-term borrowing. So short-term borrowing, as a mix of our overall debt, is around 5 percent as a mix of the overall liability will be 2-3 percent. So short-term rates don’t impact and you are right on that.
Overall, because of all the moves, even long-term rates had crept up a little bit. So we had seen an impact where additional new borrowing was happening at about 20-25 bps lower.
The rates have come off in the last two-three weeks. By the end of the quarter we should be achieving rates, which were similar to the period of April to June.
So, our lended cost of borrowing should be in the range of 10 percent and we should be able to on an overall basis protect our guidance of around 300-325 bps of spread.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.