Rule out slippages; 50 bps net NPL seen: IndiaBulls Housing

Q: While your net interest income (NII) as well as profitability has been quite steady this quarter with a growth of 20 percent on year-on-year (Y-o-Y) basis, there is a little marginal worsening which has come in on the asset quality, would you start by commenting on how the scenario is currently in terms of asset quality and whether there is some amount of incremental pressure that you are seeing now?

A: The company over the course of the last five years has had a fairly focused approach towards lending to the below Rs 25 lakh home loan segment, which is characterized by a large proportion of people being salaried and a substantial amount of equity coming in. So, I would say relative to where the macroeconomic situation is, the credit performance of the portfolio continues to be reasonably robust. The 85-88 bps movement is extremely marginal and more importantly, well within the operation range. So, we had said that through the credit cycle, our NPLs will be in the range of 70-90 bps.

We are perhaps close to the bottom of the credit cycle and we have been able to operate fairly comfortably within the guided range. From a stakeholder perspective, the company continues to still be overprovided to the extent of approximately 135 percent of gross NPLs. So, as management neither am I overly concerned on the gross or net NPL position, nor do I believe that the profit and loss (P&L) will go through any phase of volatility because we have been providing well ahead of requirement. And this is why we are at about 135 percent of gross non-performing loans (NPLs).

Also, as we continue to focus on the below 25 lakh segment, I believe that over the course of the next 4-6 quarters even if the credit environment is to toughen further, we should not see any massive slippages and credit performance would continue to be robust.

Q: The reason we asked on the asset quality while indeed on a quarter-on-quarter (Q-o-Q) basis, the slip doesn’t appear too much but if I see it over a span of three quarters in Q1, the gross non-performing assets (NPA) was 0.78 now that has come to 0.88, your net NPA in Q1 was 0.34 that has risen to 0.48 so every quarter sequentially there seems to be a little more slip. So could you tell us whether you will still hold on to that guidance of at best a 0.9 in your gross NPA and any guidance on the net NPA for next two quarters?

A: I continue to be fairly confident that the gross NPL range would be 70-90 bps. The net NPL range would be 30-50 bps and given whatever are the incremental flows etc into the overdue buckets, I don’t see this broad range getting busted in the near future. By the near future, I mean the next 4-6 quarters.

If one looks at where our NPL position is, vis-à-vis the banking and overall housing finance industry, I would say that the NPL position of Indiabulls Housing is in line with almost all other housing finance companies. It is a fraction of most private and public sector banks but our provisions are dramatically more than most other institutions including other housing finance companies.