Cost of funds to decline by 100 bps in a year: DHFL

Dewan Housing Finance Limited (DHFL) is looking to raise additional Rs 10,000 crore in couple of more tranches, said CMD Kapil Wadhawan.Cost of funds will come down by approximately 100 basis points over the next one year, Wadhawan told CNBC-TV18. Non-convertible debentures (NCD) issuance will help DHFL reduce its cost of funds, he added.The company's bank funding proportion was almost 70 percent as of March 31, 2016. Below is the verbatim transcript of Kapil Wadhawan's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal on CNBC-TV18.Anuj: Your non-convertible debentures (NCDs) listing is on expected lines but I want to understand since the kind of subscription that you saw, four times subscription, do you plan to raise more money in the immediate future?A: We have got tremendous confidence out of this fund raise that we did on August 3. It was unprecedented and overwhelming, the response we got for NCD issuance to the public. So keeping that in mind and looking at how we could reduce our overall cost of money going forward, in fact a couple of days ago we filed another draft document for Rs 10,000 crore to be issued in various tranches over the next one year's time.Sonia: In the first tranche, out of that Rs 10,000 crore, how much do you plan to issue and by when?A: We have not taken that call yet. It is a function of the market. We are seeing a lot of capital market issuances especially on the equity side. So yes, we would like to time it well but at the same time be ready for the offering as and when the window of opportunity arises.Latha: How does this affect the cost of funds? What is the cost of funds in the current quarter and how it is compared to the previous quarter?A: It is too early to call as of now but let me give a perspective, till about two years ago our bank funding proportion was almost 70 percent odd. As on March 31, post our AAA rating upgrade, we bought it down to almost 50 percent. We expect this coming down to almost 30 percent by the end of this financial year. However, bank funding is costly. Bank funding has its own restriction when it comes to the total amount of money that can be borrowed from the system. So yes, NCD issuance to the public has come as a breath of fresh air for us especially considering our yearly requirements are quite substantial, for example this year alone we will be borrowing more than 25,000 crore for our incremental disbursements. We expect the cost of funding to come down by 100 bps, if not more, over the next 9-12 months.Sonia: From 9.5 percent, which is your average cost of funds now, you are saying you expect it to move to about 8.5 percent over the next 6-12 months?A: Incrementally we are raising money below 9 percent anyway. This is my weighted average cost of money. The moment the proportionate borrowing shifts from the banking system to the capital markets, my cost of funding will come down. Of course, it is the function of the market as well where the interest rates are, where the government securities (Gsec) yields trade at, but I do expect close to 100 bps shave off at least for the next 9-12 months considering that we believe that interest rates will be on their way down over the next couple of quarters.Latha: What will our margins look like? Will you have to pass on in terms of lower yield on loans as well? How will your margins compare - FY17 versus FY16?A: We have been range bound as far as our net interest margins are concerned. We have been at 2.9 percent odd. However, with this reduction we want to pass on some of the benefit. There is always a lag effect between when you get the benefit on the cost of funding and what you can pass on to the customers, but I do expect my margin expansion to happen during this financial year by almost 10-15 bps.