Not interested in a banking licence: Indiabulls Fin Serv

Indiabulls Financial Services has announced its fourth quarter results. The company's Q4 consolidated PAT was up at Rs 303 crore versus Rs 236 crore, year-on-year, YoY.

Its consolidated total income from operations was up at Rs 1,109 crore versus Rs 762 crore, YoY.
Gagan Banga, CEO, Indiabulls Financial Services tells CNBC-TV18 that the company will merge with its arm, Indiabulls Housing Finance. The promoters of Indiabulls Financial will infuse Rs 451 crore capital in the company.
The board has okayed the proposal to issue up to 2.07 crore warrants to promoters that can be converted into equity shares at Rs 218/sh. The company also announced a 350% dividend on the back of the Rs 302 crore profit earned in the fourth quarter ending March 2012, a rise of 27% YoY. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Take us through the margin picture?
A: The spreads have been stable. We have been maintaining a spread of about 350 basis points. Given the fact that we have maintained these spreads through a fairly tough interest rate regime, going forward we expect the interest rate regime to ease out a little bit. We are hopeful that we should maintain similar spreads which would be in the range of 300-350 basis points. Q: We have already seen a 50 basis point cut from the Reserve Bank of India. Have you’ll passed it on to your customers as of now?
A: We will have to wait. We are essentially a conduit of credits, so we would have to wait a little bit. But we are fairly hopeful that we can pass on the reduction in our cost of funds. Q: Give us a breakup of the income from the various businesses?
A: The breakup of income reflects the overall asset profile that we have. So 71% of our business now involves core mortgages. Bulk of our income is also coming from there. You may have noticed that we also announced reverse merger with our housing finance company, so we would not be a NBFC post the completion of this process and we would be a housing finance company, so all of our income is coming from either provision of home loans or related type of housing loans which is either residential construction finance or receivable discounting and related businesses. Q: Does that make the regulatory rigor a bit less for you? You moved from being regulated by the RBI to being regulated by the NHB (National Housing Bank)?
A: We are currently regulated by both the RBI and the NHB. As I understand the regulatory regime for HFC is significantly more stringent, there are norms pertaining to the type of assets that one can do. There are also very stringent norms related to standard asset provisions, NPA recognition. NPA recognition for an NBFC is at 180 days pass due and housing finance company level is at 90 days pass due.
If you look at our balance sheet and the constitution of the balance sheet, all our peers are typically licensed as a housing finance company. We have capital of almost Rs 5,000 crore in the business to make more efficient usage of this capital which was trapped at the NBFC level whereas the growth was all happening in the housing finance company where we have had to do this restructuring. So our capital would get a lot more efficiently utilised. To further beef-up our capital promoters and the management team we are also infusing a sum of a little over Rs 450 crore through warrants. Q: When will the warrants be exercised? What are the other details you can give us?
A: We are immediately placing 25% once the shareholders approve. The conversion price would be as per the SEBI formula. The conversion can happen anytime over the next 18 months with 25% coming immediately. Q: For the past two years, your revenues have always grown by about 50%. Going forward how is FY13 looking in terms of growth?
A: For a lender of our sorts, more than revenue, the net interest income and the growth in profits is a lot more relevant because revenues may grow at a very fast pace in a rising interest rate regime. So I expect the overall balance sheet and the loan assets to grow by about 30%. We have done that last year and we should be able to maintain that growth rate. So 30% of growth and little over 20% on return on equity (RoE) is what we are targeting. Q: In the first year there would be a little bit of strain when the amalgamated balance sheets are presented; when PNL is presented there would be a strain in terms of higher provisions?
A: No, we are already provided to the tune of a 151% of our gross NPLs. So, we are extremely well provided. We have a very large counter cyclical provision pool and we have not been dipping into that while we have been providing aggressively. I don’t think there will be any strain of any sort. It would help us direct credit a lot better and allocate and use our capital a lot better. Q: How is the NPL picture? Do you see pressure because of the kind of business cycle we are going through?
A: NPLs for us has actually been coming off now for over two-and-half year’s quarter-on-quarter. We have been reducing our gross NPL numbers. Our loan asset book has been extremely stable. Gross NPLs are now standing at 0.79%. I am not seeing any pressure whatsoever on them in the near term. Housing assets have actually performed incredibly well through this tight liquidity and economic cycle shift that one has seen. Q: With this Rs 2 crore warrant allotment that you are doing to the promoters, what would this stake shore up to? Are there any further plans of the promoters increasing their stake?
A: The stake would be about 40% and the promoters have essentially taken a call on tier I capital - the promoters and the management team. We have an internal benchmark that we do not wish our tier I capital to go below 15%. So we have allocated as much capital as required to ensure that the tier I capital will through. As we grow over the next year- year-and-half without any further dilution we would still maintain tier I capital at over 15%. Q: You have a real estate arm. Is the chance of a banking license something on your radar?
A: We do not have a real estate arm. The real estate company is an absolutely independently listed, owned, managed company. We have no relation to it whatsoever in terms of either a single rupee or equity or debt type of exposure either ways. Neither do we own anything in them, nor do they own anything in us. Within about two months when talks began about banking licenses which was now over two and half years ago I had gone on record to say that we are very happy with the growth of our mortgage finance business and we would continue to grow the same.
I am again saying that if the balance sheet is at Rs 32,000 crore and you are making profits of Rs 1,000 crore, growing it by 30% your gross NPLs, net NPLs are very stable. I don’t see a reason why the shareholders would want us to deviate from this path. Shareholders are getting a return on their equity of over 20%. The company has distributed over Rs 470 crore of dividends. We are not interested in a banking license. We are very happy with the mortgage finance business that we are in.