Looking to grow above 30% in FY18 Vs 18-20% earlier: DHFL

According to him, profit growth is in-line with growth in assets under management.

Below is the verbatim transcript of the interview.

Surabhi: The big talking point in the market is can you still get this kind of growth? Will you not have to compete now with PSU banks that will get aggressive? In fact, if I remember, it was State Bank of India, without the recap that started the real rate way with that 8.3 percent home loan announcement.

A: First and foremost, I think this is definitely good news. This is definitely good news for the housing finance sector. If all these things start falling in place, it only broad bases the market. If you have looked at the growth which DHFL has shown over the past few quarters and with the strong tailwinds of affordable housing pushing further disbursements, this should, in our house, we are fairly optimistic that we should be able to keep up the momentum of anywhere earlier from an 18-20 percent growth revised to more than 30 percent growth. We clearly see the tailwinds in favour of pushing the disbursements up.

Latha: I will come to this debate in a bit on competition from PSU banks, but I have an even more fundamental problem. Every housing company we speak to, real estate company we speak with, say there is no demand. They are not able to see any sales at all and yet, all the housing finance companies are giving us between 30 and 50 percent growth. Whom are you financing, only the unlisted companies' houses? I don't hear of people buying houses.

A: Let us understand one thing. From a DHFL perspective, we are pre-dominantly spread across Tier-II and Tier-III towns, in the outskirts of cities. Even in this market where people talk about the real estate prices being high, our incremental home loan ticket size continues to be at Rs 17 lakh, at a portfolio level, it is just Rs 13 lakh. So it is in those Tier-II and Tier-III towns coupled with approximately Rs 2.4 lakh of interest subsidy coming in through Pradhan Mantri Awas Yojana (PMAY) is pushing the disbursements. And, with a fairly good monsoon across, you are definitely seeing this supporting business. Add to it, you have interest rates which are lower. So all these things put together is giving that incremental push from 20 percent which was normal growth closer towards 30 percent and that is what you see happening across in smaller towns.

Anuj: So 30 percent can be the growth in profit as well and in terms of your return on equities (ROE), do you think you will be able to inch it further from here?

A: If you look at this Q2, the results which we announced, we grew at about 30 percent on the topline, our profitability grew at about 23-24 percent which is in line with our assets under management (AUM) growth because ultimately it is the AUM which is giving you the interest income. So, we are fairly optimistic that if we continue to grow at 30 percent, our profitability should match up with our AUM growth.

Latha: What part of your loans are from this PMAY houses?

A: I would say, if we look at our disbursement I would say close to 60 percent of our loans which we do fall under one or the other scheme of the government, whether it is to do with rural housing, whether it has to do Credit Linked Subsidy Scheme (CLSS), Economically Weaker Sections (EWS), Lower Income Group (LIG), Middle Income Group (MIG) 1 or MIG 2.

Latha: So all of them are eligible for subsidy, these 60 percent?

A: Yes. One or the other subsidy scheme falling under housing.

Surabhi: So to take that point forward, what is the composition of the book now? How much is it pure residential housing financing, how much is it land or plots? Is there also a loan against property (LAP) component? I just want to understand the breakup of the book, the book which you are saying is going to grow at about 30 percent.

A: When you look at the book, two thirds, 67 percent are all individual retail home loans. You have approximately 18 percent which is LAP, 3 percent which is SME and you have about 13 percent which is your project finance.

Latha: And going forward as well, you expect this PMAY or the subsidised entity to continue to give you that kind of firepower, 30 percent growth in home loans?

A: At least in the short to medium term, we are fairly enthused with the kind of numbers we are getting and the kind of enquiries we see in the field.

Latha: How will margins pan out, net interest margins (NIM) or spreads in FY19?

A: Our endeavour has always been to protect the NIMs in the range of 300 basis points. This quarter, we were at 304 basis points because two things. One, while there is pressure on the lending rates at the retail end, it also supports in terms of bringing your cost of funds down. And if you look over the last three quarters, we have been able to bring our cost of funds down by close to 65-75 basis points which has helped us maintain the margins.

Latha: Going by what Urjit Patel is talking and his Monetary Policy Committee (MPC), the cost of funds are not going to fall further. Today the 10-year yield is 6.85 percent. You were borrowing your funds when the 10-year was probably at 6.5 percent. And further, you are going to have public sector banks one year down the line or maybe even six months down the line, competing and offering lower rates because they can, they have savings accounts. Therefore, I am asking, Rs 300-305 maintainable?

A: We are fairly confident because there are areas of opportunities which lie with us. You have another areas in terms of your borrowings which is almost 46 percent being bank borrowings, you have opportunity to expand into non-banking borrowings, whether it is to do with your bond markets, money markets or External commercial borrowing (ECB) or masala bonds or any of those which help you diversify your borrowing mix.

Surabhi: Another point on competition. I know we are really grilling you today but it is that kind of a market. When we speak to truck financiers or SME financiers, the argument they have given us is that they are into very niche elements, whether it is extreme microfinancing. Therefore, they say they can compete with the big banks because the big banks are simply not going down to their segment. But what about housing finance companies? What is going to be the differentiator that will ensure that you do not lose market share when these big banks come with big money?

A: We need to understand first housing finance companies for that matter are a specialised lot. They are there for a particular objective which is to do with housing finance. Now, when you look at banking per se, it is not just home loans, they have a whole host of financing to do. Especially you go to Tier-II and Tier-III, it is not just home loans. There are farmer loans, crop loans and what have you in that aspect.

Now in that gamut of loans, please understand there is only one branch manager and in that, if he has to do a Rs 12 lakh loan, it is going to take time. On the contrary, specialised housing finance companies with one objective, they are just going to go after this and reach out to customers, reach out to developers, reach out to contractors. And I think it broad bases the entire thing. So it is a huge opportunity. On the backdrop of a single digit or almost touching 10 percent mortgage to GDP ratio. We are talking huge opportunities.