Not interested in banking licence: Indiabulls Financial

"Indiabulls financial services book grew approximately by 30 percent from Rs 25,000 crore same time last year to Rs 32,500 crore," says Gagan Banga, CEO of Indiabulls Financial Services. In an interview to CNBC-TV18, Banga says that the company has managed to beat street expectations by reducing borrowing cost and bringing down cost.

Further Banga adds that Indiabulls is not interested in banking licence. "The company has taken a series of strategic initiatives to make sure that it is well-positioned as a housing finance company. This is now the third largest housing finance company by size, second largest by profits. So, we have a fair level of confidence that housing finance is our chosen business and would like to see this growing by 25 to 30 percent over the next few years," adds Banga Below is an edited transcript of Gagan Banga's interview on CNBC-TV18 Q: Your profits have managed to beat expectations; a part of it has to do with lowering borrowing cost. You have exposure to wholesale and are trying to bring down cost. How much cost can you bring down from current levels?
A: It will be a function of how the overall rates move in the economy. Over the last four quarters there has been a trend in which the overall borrowing rates have been coming off in the market. To a large extent, it will be a function of the type of liquidity that prevails in the market as well as a function of the cash reserve ratio (CRR) and repo action, taken by the Reserve Bank of India (RBI). So, it will be premature to say and put a number whether it will be X or Y basis points, but overall the trend is encouraging and it seems the trend is on the downward side. Q: You mentioned in the press conference that you are also looking to raise some forex loans now that the external commercial borrowing (ECB) window is open. Just to reiterate, even the domestic interest rate scene is looking like it might ease up a bit and are already seeing that in wholesale money. What were your net interest margins in the quarter gone by and how much gains are you likely to make?
A: For a company like us that is well capitalized, the more relevant number as against net interest margins are the overall spreads that we enjoy. Overall spreads are stable at about 330 basis points and the spreads should be stable to marginally inching up. We had hit the bottom as far as the spreads are concerned and now we are seeing some positive trend on that.

ECB for us, diversification of borrowing sources has been extremely important. Over the last three years, we first focused on the domestic banking system to make sure that all the banks lend to us. Then we invested in the bond portfolio and now with the ECBs opening up, an extremely important source from a diversification point of view and also from ensuring that the asset liability continues to be matched because there is a long term fund availability overseas. Q: What about the credit rating? Have you managed to improve it from the AA+ levels, any indications of by when that could happen?
A: Over the last three years we have moved from AA- to AA and now an AA+, which we got in 2011. I expect that as ratings grade up, rating agencies decide capital and overall stability of business, also look at the time spent in the business. So, I expect positive rating action. The company has taken a lot of steps for positive rating action like the reserve merger and the rebranding exercise which we initiated and overall the asset profile that we are originating, which is reflected in the credit cost. So, an upgradation from here is just a matter of time. Q: What was the credit growth?
A: The book grew approximately by 30 percent. So from Rs 25,000 crore same time last year we are now at about Rs 32,500 crore. Q: The government would like companies with interest in real estate and stock broking also to be considered for banking licence. If that were to come by you would you be interested?
A: No, we would not be interested. We have taken a series of strategic initiatives to make sure that we are well-positioned as a housing finance company. This is now the third largest housing finance company by size, second largest by profits. So, we have a fair level of confidence that housing finance is our chosen business and would like to see this growing by 25 to 30 percent over the next few years. Q: I didn’t mean Indiabulls Financial Services; will the group be interested in a license?
A: As of now, we want to spend all our bandwidth in taking forward the financial services business using the housing finance company license and tapping that opportunity.