FY18 aim to reduce loans below 40% achieved: Indiabulls Hsg Fin

The aim to reduce bank borrowings below 40 percent by FY18 is already achieved, says  Gagan Banga, Vice Chairman and Managing Director, Indiabulls Housing Finance. Indiabulls has a balance sheet size of Rs 91,000 crore, of which around 25 percent is cash balance. Banga expects the balance sheet size to rise to Rs 1 lakh crore by the end of current fiscal.The cost of funds for the company declined by 25 basis points in the second qThe company's net profits rose 23 percent in the second quarter of FY17 year-on-year at Rs 684 crore.Below is the transcript of Gagan Banga’s interview to Prashant Nair and Abhishek Kothari on CNBC-TV18. Prashant: Could you talk to us a little but about how the quarter was and specifically, have the last quarter figures been restated? A: The quarter has been extremely good. We have probably done what I would think of is our best quarter both qualitatively and quantitatively which is reflected in the profit after tax number which is the highest profit that the company has made. We crossed Rs 91,000 crore of balance sheet size and are on track to get to Rs 1 lakh crore of balance sheet within the financial year. We have also through the quarter very successfully managed our liabilities side and have made progress to the extent that targets which we had set up for end of fiscal 2018 of dropping the bank borrowings below 40 percent have already been achieved a year and a half in advance. Our non-performing loan (NPL) position continues to remain extremely stable and we had guided for a range of 70-90 basis points of and 30-50 basis points of net. We have been in the range of 85 basis points of gross now for the past 4-5 years and we continue to be in that range. Similarly, net NPA are in range of 34-35 basis points now and as importantly, our overall provision cover is now over 150 percent of our gross NPA. So, we are extremely well provided while we continue to remain extremely well capitalised at over 23 percent. We are also restating and re-emphasising our focus on the core home loan business and have launched a new product which is targeted to Tier-III, IV and V markets. Prashant: You gave us the asset quality numbers. How is the lap book doing? The loans against property done in the quarter because there has been a fair bit written and spoken about that as to that being a concern. A: Yes, because loans against property had become a black box, continues to remain a black box for a large part of the industry. You may be aware that about a year and half ago, we had partnered with two rating agencies who are rating our portfolio on a concurrent basis and are publishing details about our portfolio. Today, about 75 percent of the loan against property portfolio of Indiabulls Housing is under loan by loan scrutiny of rating agencies and it is with that knowledge which is available in the public domain that we continue to remain extremely optimistic about our loans against property portfolio, that portfolio continues to grow at a pace of roughly 20 percent while the overall book is growing at about 30 percent. And on an ongoing basis, the strategy would be to focus even harder on the home loan business. So, while loans against property would be growing at 20 percent because we are targeting book growth of between 25 and 30 percent, we believe that the home loan book will be growing by north of 30 percent. And loans against property from a credit quality perspective or from our ability of being able to process the loans while maintaining our credit norms continues to be extremely healthy because our product proposition is also quite unique at an average ticket size of between Rs 70 lakh and Rs 1 crore as against most of the market being at about Rs 5 crore. Abhishek: If I check your consolidated profit and loss (P&L), the other income has spiked up by 40 percent on a year-on-year (Y-o-Y) basis and around 62 percent on a quarter on quarter basis. So, is there a one off or will this be on a continuous basis going forward? Also, could you highlight on your balance sheet growth in terms of what were the disbursements and how you are seeing the sanctions being piled up especially from the developer portfolio? A: Other income is the income line on the P&L which is a reflection of the returns that we get by investments of our cash and cash equipments and as all of you are aware that there has been a tremendous opportunity of being able to generate treasury gains, the company was anyways running with a very high cash balance, subsequent to our two large bond issuances through the course of the quarter. So, the other income line has spiked up merely because of the treasury gains which we have booked, all of which we have used since treasury gains are not normal. We have used to provide extra which is why our credit costs for the quarter include extra provisions which we have done on a voluntary basis and stand at 77 basis points. We have already guided that we will continue to provide additionally till the time that we reach an over provision number of approximately 175 percent on percentage terms and Rs 600 crore on absolute value basis. As we speak, we are at about Rs 330 crore and we have used the treasury gains to provide additionally. Disbursements were just in the range of under Rs 7,000 crore which was roughly a 11-12 percent increase over last year and roughly about 20 percent increase over quarter one of this year which is generally the practice as the busy season starts, disbursements tend to spike up and Q3 and Q4 would be even busier for us. As far as the builder book is concerned, the builder book continues to be stable, we have been offlate over the course of the last two years been emphasising more on lease rent discounting and that would continue to be focus area as far as the commercial loan book is concerned. So, we will be emphasising more on lease rent discounting of built up buildings as against emphasising on construction finance. Prashant: So, other income is essentially how you deploy cash and the returns you get on it. What is cash equivalents as a percentage in the total balance sheet now? Where does it stand? It was about 24 percent at the end of the first quarter. A: It is roughly at the same level so we ended the quarter just north of Rs 20,000 crore which will be approximately 24-25 percent of our balance sheet of Rs 91,000 crore. Prashant: What happened to cost of funds in the quarter and how has that changed? Could you give us a breakup as well? A: The cost of funds is down approximately 25 basis points and which is transmitted to a spread change over the course of last nine months, the spreads are up almost five basis points which in our kind of a business is extremely meaningful. Bank term loans has been sticky but our dependence on bank term loans on absolute stock basis has come down in the last six months and through the course of the quarter also we have not borrowed from banks. So, bank term loans are down for the last six months approximately 10 percent. Bonds have tended down. Corporate bonds are trading about 65-70 basis points lower over the last six months. We have benefitted all of that which has resulted in just about 25 basis point saving on overall cost of funds.