Will grow at 25% for next few years: Indiabulls Hsg Fin

After having posted positive FY12-13 numbers with a net profit growing by 25.80 percent year-on-year (YoY), Gagan Banga, chief executive officer, Indiabulls Housing Finance Limited (IHFL) continues his bullish stance on the company's future performance.

"The company continuous to be very well capitalised. Our overall capital adequacy stands at over 18 percent and we have fair headroom to grow at about 25 percent," adds Banga in an interview to CNBC-TV18.

IHFL reported a revenue growth of 24.82 percent at Rs 4,777.87 crore and the earnings per share (EPS) for the year jumped 25.59 percent to Rs 40.19 a share.

Below is the edited transcript of Banga’s interview to CNBC-TV18.

Q: Can you just start by taking us through the highlights of this quarter in terms of your net interest margins (NIM) and your credit cost and how exactly your spreads did as well?

A: This quarter has actually been very robust for us so we have been able to record 25 percent increase in our overall profits for the year. Profits have increased to a little over Rs 1,266 crore for the year from Rs 1,006 crore. This is largely on the back of a very stable growth in our loan book, since over the last few years the emphasis has been on home loans. We have been able to moderate the asset quality to very stable level. Gross non-performing loans (NPL) are restricted to 79 basis points, net NPLs stand at about 33 basis points, so asset quality has been very stable.
We have also come to a stage where the evolution in the asset book finished about a year ago and spread has been stable at about 350 basis points. Our return on asset is stable at about 370 to 375 basis points. Having hit this run rate of growing our book by about Rs 1700 to about Rs 2000 crore per quarter, it is giving a 25 percent growth rate for the organisation. We should be able to continue at this rate in a reasonably robust and predictable manner. The company continuous to be very well capitalised to fund this, so,  our overall capital adequacy stands at over 18 percent. We have fair headroom to grow at about 25 percent. Q: While I got your spreads which you all delivered this quarter, can you just take us through the net interest margins (NIMs) or the margins that you all reported in this quarter in particular and how exactly do you expect it to pan out on a parallel basis? Where exactly would the credit cost stabilise at?
A: Our book today is yielding about 13.6 percent. Our cost of funds are at about 10.1 percent. We enjoy a spread of about 350 basis point (bps) and if one looks at the full 12 months of the financial year, we have been able to maintain spreads at 350 bps. NIM for an organisation like ours is slightly less relevant because our core tier-I that is equity, is very high, at over 14.5 percent. And this is a very unique feature in the industry.
Most other industry players operate at about 10 percent, tier-I. So, NIM becomes a little less relevant. What is relevant is the spread and return-on-asset. So, spread for the year and the quarter was stable at 350 bps and return-on-asset for the year was stable at 380 bps. This is about 10 bps higher than last year. Last year’s return-on-asset was 370 bps.
Our credit costs have been stable at about 30 basis points for the year and overall the delinquencies have been restricted to 75-80 bps. I had earlier guided the market that our delinquencies will be in the range of 70-90 bps and we continue to be more on the lower side of that range than on the higher.
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Similarly, we had guided the market at the start of the last financial year that we will grow by 20-25 percent. We have been able to exceed that number marginally and have grown by about almost 26 percent. So, my sense is that both on delinquencies, the range remains the same. We should be in the range of 70-90 bps in the near-term. Q: How have you managed to maintain your asset quality? In terms of loan growth and as a strategy that the company adopts- where exactly would you be the most cautious and where exactly would you be possibly the most tread with trepidation in terms of worsening of asset quality or your book?
A: Our assets are largely uniformed, so the bulk of assets that we finance are against the security of a house which is done at a very moderate loan-to-value. Hence, the home loan that Indiabulls gives out, is given out while the peak rate can be as high as 80 percent. The average for the book is only about 65 percent. It is a monthly amortising loan, so the loan to value is actually coming down every month. Since the payments have to come back from month one, every month is both the interest and the principle.
On the retail side, we continue to have fairly robust asset quality. This is a phenomena which is not only true for Indiabulls but for the overall housing finance industry at large. There are two trends which are very interesting. Firstly, the housing finance companies over a period of time have managed to increase their market share. This essentially says that for home loans, customers are still willing to pay a marginally higher interest rate for customer service. Secondly, almost all housing finance companies have been able to maintain asset quality in broadly the range that we operate in.

Q: There is a lot of talk on banking licences coming through. Would you as a group be interested or would Indiabulls Housing Finance be interested in applying for one and whether or not you have already?
A: Yes. Indiabulls Housing is completely ring-fenced from whatever other businesses exist in the Indiabulls Group. So, to that extent, we as Indiabulls Group have a very unique structure. There are five listed companies but each of those listed companies have nothing to do with each other, not only at shareholding level but also at operating balance sheet, equity cross holding. So, we do not get affected by the cyclicality that maybe a real estate business or a power business may go through.
We believe after plain reading of the guidelines, that we are eligible. A bank is a very valuable franchise to acquire over a period of time. We will surely participate but as a management, our view is that this is going to be a prolonged process. The central bank and the government would be very careful in giving out these licenses, so that is not going to happen in the near future. What we are doing is that we are building the organisation to grow at a rate of 25 percent for the next few years. We have the organisation ready from both a structure as well as bandwidth perspective and we will participate in the licence process. There is a deadline of July 1, which the Reserve Bank has specified so after due approval of the board, we should be applying.