Confident of 20-25% growth in FY16: Indiabulls Hsg Fin

Gagan Banga, VC & MD, Indiabulls Housing Finance is very upbeat on the business outlook going forward and expects to maintain a 20-25 percent growth quarter on quarter and states that for the last five years the company has been operating within that range.The segment of home loans between Rs 25-30 lakh category have shown continuous traction compared to the high ticket category of above Rs 1 crore, says Banga. Rs 1 crore segment has been negatively impacted by rental yields, high mortgage rates, says Banga in an interview to CNBC-TV18.Going forward he also expects the company to maintain spreads around 300 basis points. Savings in spreads would be passed on to the consumers, says Banga.The stock has been in focus after its addition to the MSCI’s ACWI IndexClick here: Q1 performanceBelow is the transcript of Gagan Banga's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: The quarter gone by has been very good for you. The net interest margin (NII) growth of 26 percent, profit growth of 20 percent odd and asset quality has been maintained quite stable as well. Give us a sense of what the quarters to come will look like and where the growth could come in from?A: In 2010, we had guided on the fact that in the foreseeable future we see the business growing between 20 percent and 25 percent across various financial parameters - that was the we started focusing in the whole home loan and related mortgage opportunity and as time has gone by over the course of the last five years very systematically, we have gone about operating within that range of 20-25 percent. However, as we sit in the second quarter of FY16, in the foreseeable future I expect that business should continue to grow at 20-25 percent.Last year we got a series of credit rating upgrades which has allowed us to - while keeping our margin stable, gain reasonable market share in the whole home loan opportunity. In the home loan space we focus in the space around Rs 25 lakh-30 lakh of loan, which is a one segment of the real estate market that continues to see reasonable traction even today. So given where our costs of funds are, credit ratings are and the capital is, I am reasonably confident that in the foreseeable future this 20-25 percent would get replicated quarter by quarter. Latha: How will margins pan out you think?A: Our spreads have been maintained at give or take 300 basis points (bps) and whatever additional savings we have had given the rating upgrades and the overall interest rate downward cycle that the country has been witnessing over the course for the last 12-15 months, all of that benefit has either been passed onto the customer or has been utilised to get some more market share or create countercyclical buffers. I think the strategy on the longer-term basis would be to maintain spreads at about 300 bps. So whatever savings that we get on the, we will use them to pass on to the customer.Latha: You have a loan against property segment, I would assume that you will lend to other real estate developers as well, what is your non-residential, non-retail component?A: The non-retail component is at about 22 percent and about 60 percent of that lent out in structures, which are remote to the real estate developer, which is in the form of a discounting of rents of fully leased out commercial buildings. The balance 40 percent is residential construction finance. Approximately 8-10 percent of our balance sheet is exposed to residential construction finance.Sonia: Can you throw some more light on the home loan demand. I heard you mention that Rs 25-30 lakh category is still doing well but we have seen a big fall in registrations in the high-ticket segments, Rs 1.5-2 crore category, what is your own exposure to that segment and in general because you lend to this space, how long do you think it could take for a recovery to come through?A: More than Rs 1 crore segment has been pretty negatively affected by the fact that mortgage rates in India continued to be at about 10 percent, rental yields are only at about 3 percent. Historically, this gap has been 4-5 percent and people still would invest in properties with the gap of 5 percent because there was a general expectation of capital gains given the gross oversupply in the premium end of the market.

However, that situation has changed and unless the suppliers worked through which will take 3-4 years, my sense is that the premium end of the market would continue to remain slow. The lower end of the market, which is more defined by the first time users, who get a lot of tax incentives and their effective cost of mortgage net of tax incentives is only about 5 percent. So for 2 percent they can own a house and that mathematical equation is so strong that you would continue to see very good momentum, not only in our books but also in the overall housing finance industry. So housing finance companies have been growing at about 22 percent much in the same range as we have been growing and that is largely because of the tax swaps; the mortgage rate comes down to about 5 percent and there is tremendous incentive for first time users to buy a house. So my sense is the lower end of the market continues to remain strong over the years to come. While higher end of the market would have 3-4 years of supply which it needs to work through.Latha: Give us a word more on your non-retail segment which you said is 22 percent, does that give you a much better spread?A: Intuitively, large loans tend to have a chunkier profile, they would give more spreads, they also require more provisioning and any business would require several legs to stand on. It is a very critical leg for us and historically, given our risk management practices it has done extremely well from an return on asset (ROA) perspective.