Targeting provision coverage ratio of 70%: Repco Home

Repco Home Finance posted 21.3 percent rise in standalone net-profit to Rs 42.22 crore in the last quarter ended March. R Varadarajan, MD, of the company, credits this growth rate to demand coming from tier-II and tier-III cities, particularly in the underserved and non-salaried section.Speaking to CNBC-TV18, Varadarajan said: "Because of the revised fixation of rates for our borrowing, we will be able to pass it on to that extent to our customers so that we are able to maintain it at three."He says the company is aiming at provision coverage ratio (PCR) of 70 percent. "We are making additional provisions in our non-performing assets (NPA) so that our balance sheet is better projected."Below is the transcription of R Varadarajan’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Reema: If you could tell us what the earnings growth has been for the company in FY16 as well as what you outlook is for the coming year?A: We were able to post a good profit growth of 21 percent. Now it is Rs 150 crore profit after tax (PAT). This growth rate was possibly, consistently throughout the year because we were focusing on the Tier-II and Tier-III cities and particularly the underserved, non-salaried section. So, this has helped us to have a robust growth during the year.Nigel: Can you give us the outlook on growth ahead in FY17 and from where will we be seeing demand coming up from?A: It has been a consistent policy of the company to focus on this non-salaried sector and more particularly, in the peripherals of Tier-I and Tier-II, Tier-III cities and we see a lot of potential in those areas. So, that will give the growth in the next year also.Reema: How have the margins been and with marginal cost of funds based lending rate (MCLR) being introduced for the banking space, how would the cost and margins pan out for Repco Home Finance in FY17? A: During the year, when there was a very marginal reduction in the cost of our funds. So, it was earlier around 9.5 percent, it is now 9.4 percent. and we were able to maintain consistently the spread of 3 and a net interest margin (NIM) of more than 4 percent. In fact, the NIM has been 4.4 percent for the year ending FY16. Because of the revised fixation of rates for our borrowing, that maybe a marginal reduction in the cost and we will be able to pass it on to that extent to our customers so that we are able to maintain this spread of three. And continue to have the NIM of more than 4 percent. That is our policy.Nigel: Why has the provision been higher in the Q4, that despite an improvement in asset quality.A: Because we would like to maintain a better provision coverage ratio (PCR). So, our provision coverage ratio, in fact, we were aiming at around 70 percent, we could go only up to 63 percent now. However our intention is to take it up to 70 percent PCR. We are making provision than the requirement. In fact, it is not the nearly the required provision. We make additional provision also in our non-performing assets (NPA) so that our balance sheet is better projected. We would like to have, in fact, we would like to take it to 100 percent in the next 2-3 years so that the net NPA will become zero.Reema: Any capital raising plans in the near future?A: Even now, if you see the debt equity is only just six plus, so we can even raise it up to eight. Even if you see, we are very comfortable, so according to my view, probably another 2-3 years we may not require additional capital now.