Expect 30-40 bps NPL; focused on NBFC biz: Capital First

Capital First, a non-banking finance company, reported a 22 percent increase in its net profit at Rs 36.5 crore for Q4FY15. In an interview to CNBC-TV18, V Vaidyanathan, chairman & managing director, Capital First shares his views on the company’s numbers. Below is the edited transcript of V Vaidyanathan’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Good set of numbers specially on the net interest incomes (NII) front but your profitability was impacted quite a bit by provisioning. So, if you could tell us what kind of growth you anticipate, a, in NII and b, in profitability in FY16?A: Let me just explain the numbers for everybody’s benefit. Our total income actually went up from Rs 115 crore to Rs 184 crore, a growth of 59 percent and the profit after tax went up from Rs 29.8 crore to Rs 36.5 crore, a growth of 22 percent.The reason why the profit after tax has not kept in pace with the profit before tax which went up by 102 percent is that there were certain one time tax benefits we got last year of Rs 17 crore which did not come through in this quarter.But overall, on a pre-tax basis, it was a pretty good quarter for us and actually for the year as well.Ekta: That point is taken, but in terms of provisions your quarterly run rate as been around Rs 30 crore at least for the past two quarters. Do you expect that to continue in the coming quarters?A: Yes, after all, we are in a lending business and the nature of lending we do is to really small customers with ticket sizes of Rs 30,000-50,000 to Rs one lakh.So, portion of the loan portfolio will have a certain amount of delinquency and our net non-performing assets (NPA) are about 17 basis points. So, broadly about Rs 30 crore a quarter is pretty much to be in line. But having said that, in this particular quarter we also took an extra provisioning because we tightened the provisioning norm on some of our portfolios, so, we took Rs 4 crore extra provisioning as well in this quarter.

Anuj: Which part of portfolio is having the best growth and what are the areas that you would like to focus on in the next financial year?A: Our key line of business is actually lending to small entrepreneurs against security of property and that is close to about 70 percent of loan book is that business close to about Rs 7,000 crore. That business is growing at about 25 percent per year, quite comfortably year-on-year. The second business we do is financing for smaller customers, as I said before, to whom we lend about Rs 50,000-1 lakh. That customer base of course is growing much stronger at about 50-60 percent and that business is of course much more profitable. The net interest margins (NIM) are about 6.7 percent for us and this should stay stable for the next year or so.Ekta: So, 6.7 percent compares to what year-on-year and quarter-on-quarter (q-o-q) and what might your cost of funds have been in this quarter as compared to last quarter?A: Last year around the same time it was about 6.4 percent. So, it has gradually inched up. That is because the mix of portfolio, mix of lending that we do has changed slightly towards the customers for higher who are yielding customers.Ekta: And cost of funds? Any estimate in terms of where you expect it to trend in FY16?A: The cost of funds is already come down by close to about five basis points in the last quarter, ever since the banks have started reducing interest rates. And as more banks start passing it through the system, for example close to about 75 percent of our borrowing from the banking system, so as banks start reducing base rates, as we have seen in the recent past, that benefit should come to us and frankly that will not stay with us because we will pass it to the customers as well.

Anuj: You also raised quite a bit of money in the last quarter via qualified institutional placement (QIP). If you could tell us are you done with your funding requirements or could we see some more equity issue from Capital First? A: We do not see any equity issuances at least in the near future because on March 31, we raised Rs 300 crore by way of QIP at a price of Rs 390 a share. And that has taken our capital adequacy to 23.5 percent as of now. So, really at this capital adequacy we do not see the need for more equity at this point of time. Ekta: I am not sure whether you have applied for a small bank licence or maybe you would be interested in any sort of differential bank licence. Can you just give us in terms of aspirations where would Capital First maybe see themselves beyond being an non-banking financial company (NBFC)?A: First of all, in the nature of business that we are in we think that the opportunity is really very large and our book size is not that large for us to have any head room at this point of time. I say that a loan book is in our own words, only Rs 12,000 crore.So, basically we feel that staying as an NBFC, there are significant benefits and opportunities. So, as of now, we have not applied, there are no real plans to apply for a banking licence and we stay where we are. Ekta: And before we let you go, I want your sense in terms of gross non-performing loans (NPL). You do not really have a problem in terms of your gross NPLs at 0.7 percent but any range or maybe any estimate in terms of where you expect it to go in FY16 at all? A: Our gross NPL at 0.7 percent, net NPL at 0.17 percent, so the last many years, ever since we started the consumer business and retail businesses. About 30-40 basis points of net NPL are to be expected. After all we are lending to customers of that segment. At this point of time at 17 basis points, as the portfolio matures as the years roll by, that sort of number is to be expected. But there is nothing out of the ordinary or nothing to be worried.