Eye 20-25% profit, spread at 300 bps for FY16: Indiabulls

In an interview to CNBC-TV18, Gagan Banga , Chairman And Managing Director, Indiabulls Housing Finance, shares his views on the company's Q2 numbers. The mortgage player reported a 23.93 percent jump in consolidated net profit to Rs 555.53 crore for the second quarter ended September 30, 2015-16.

Below is the verbatim transcript of the interview..Ekta: Wanted to start with your overall performance, it has been good with the net interest income (NII) up around 34 percent, profit up 24 percent. What is you guidance in terms of the remaining part of the fiscal? A: We had guided at the start of the year that we will grow business across all financial parameters between 20-25 percent. If we look at the first half of the second quarter, all numbers in terms of profits etc are in the range of 22-24 percent and my sense is that we should land up with profits at the higher end of the range which is closer to 25 than to 20. But we will stick to the guided range of 20-25 percent for profits. Ekta: And what do you envisage in terms of loan growth? A: The overall book growth should be in the range of 25-27 percent and that should result in a net interest income growth of a similar number which is 25-26 percent. The company did a closure of a very successful equity launch so we have the growth capital for it. Our net worth is now approximately Rs 11,000 crore. We are also benefitting from a changing borrowing mix and as bonds become a more turbulent source of money for us, for example in the last six months, we have actually reduced our bank borrowings. Over the last one year, over 70 percent of our moneys have come from bonds. That is resulting in the cost of funds coming down much faster than the actually effective market rates for the lending that we have been doing and is causing spread expansion. We have also been able to reduce our cost income ratios by almost 170 basis points in the first half and for the full year I expect this number to be very close to 150 basis points and our credit costs are also down 10 basis points. So, as a combination of reduced cost of borrowings. Falling gross income ration and reducing credit costs. I am reasonably sure that the return on asset will grow for the full year by about 20-25 basis points and which should result in profits also growing at the range of approximately 24-25 percent and NII growing 25-26 percent. Ekta: A quick word on the gross non-performing loans (NPL). You expect it to continue at the 0.8 percent mark and also what were the spreads this quarter? A: Spreads have remained steady at just over 300 basis points. We have been guiding for a while that spreads will remain in the range of 300-330 basis points. A lot of the savings that we are doing, we are transmitting that as far as the loan book is concerned by focusing harder on the home loan portion, so spread should remain steady at about 300 basis points. And gross NPLs for the last four years have stayed in the range of 70-90 basis points. Net NPLs have stayed in the range of 30-50 basis points and I do not see this rage getting busted in the higher side in the foreseeable future. So, reasonably comfortable with 80-85 basis points of gross NPLs. Nayantara: You are not changing your guidance at all, so would that mean that you are not at all enthused by the Reserve Bank’s latest attempt to provide a booster shot to housing loans by reducing the risk weightage? A: I am actually very enthused fortunately for our stake holders, we are already sitting on a position where our capital adequacy ratio is very high and we have raised this capital that we did in September to make sure that there is a strategic shift in our borrowing mix. We are able to regulate the supply of our borrowings and thereby reduce our cost. So, I am extremely confident of not only this 20-25 percent growth being sustained, but the steps we are taking is to make sure that for the next three to four years, we are continuing to grow at this 20-25 percent range which is a very healthy number to be growing by in the Indian financial system. I am extremely encouraged. It is a very positive move. It will definitely give a boost to the overall housing sector and what has also happened is that in the segment that we focus on which is the below Rs 25 lakh home loan segment, because of the tax offs that the government gives, a 9.6 percent home loan which is the home loan rate that we offer at, actually becomes 4.6 percent. So, today, and rented yields in India are about 3 percent. So, over the course of the last one and half years, the gap between rental yields and effective mortgage yields for this segment has halved. So, it was about 3 percent, it is now about one and half percent. Now, this from a affordability perspective is the single biggest needle mover and after being very circumspect about real estate demand, I am now finally coming to a stage where I see that at least in the Rs 15-75 lakh home loan segment, the growth rates will actually pick up. They have been sustaining at about 18 percent for the last three years. I think for the overall market you will see growth rates increasing to 20 percent and we will grow a bit faster. But the company is also trying to achieve more long-term strategic objectives. Stability is our core area of focus. For that our emphasis on home loans is increasing. Home loans on a relative basis is a slightly lower spread business, therefore we stick to our guidance of 20-25 percent with the hope that this will be become less a one year guidance, more a five year guidance.