Will see an improvement in Q2 earnings, says Repco Home

Repco Home Finance's asset quality deteriorated significantly in Q1 but lower provisions aids earnings.

In an interview to CNBC-TV18, R Varadarajan, MD of Repco Home Finance spoke about the results and his outlook for the company.

Varadarajan said demonetisation did have an impact on Q1 earnings.

However, will see an improvement in Q2 earnings, he added.

Repco Home saw pain in asset quality from loan against property in non-salaried segment.

Facing stiff competition from commercial banks offering very low rates, said Varadarajan.

Have passed on 70 bps reduction in cost of funds to our customers, he added.

Below is the verbatim transcript of the interview:

Latha:  There were positives in terms of sanctions and your book increasing but let's touch on what was little scary - a 50 percent jump in your bad loans?

A: Yes, there is deterioration in asset quality but we know the type of customers we serve particularly in the tier two, tier three cities and non-salaried segment, we thought the demonetisation effect will be over in Q1 but it continued. However, what we see post demonetisation as well as a switchover to goods and services tax (GST), there will be a transition stage. What we see in the management, it's a transition stage and compared with the December quarter and now without having regulatory forbearance, we saw some slight improvement in it. It's not a consolation but still we thought if we put a task force in place and see how best we can help these customers to come out of this non-performing asset (NPA) status. I think we should be able to be on the track as far as gross non-performing assets (GNPA) is concerned, but we are on the job and we believe that it is only a transition stage which should be able to come back in the original position soon.

Latha: Maximum bad loans were on fresh generation, was on loan against property or non-salaried. If you can tell us how much the increase was as well are you reasonably confident that you have taken most of the pain and that in the current quarter there won't be too much of a spill over?

A: You are right. Actually this is mainly in the non-salaried segment and particularly in loan against property (LAP) segment because it's a business class who are affected during this era. As I told you in the beginning, we very sincerely believe it is only in the transition stage and that means there should be improvement in Q2 but at the end of the year of FY18 we should be on normal track as we used to be.

Reema: Disbursements in Tamil Nadu have slowed down significantly on account of the registration issue and you still get about 62 percent of your overall loan book comes in from the state of Tamil Nadu. What is the update there? How long will the slowness continue?

A: High court of Madras has removed the stay only very recently, probably at the end of the Q1 and on ground situation it takes some time for it to stabilise and that is the reason since 2/3rd of my book is only in Tamil Nadu. There was slowdown in Tamil Nadu and it naturally affects the performance of the company on the disbursement side but we feel things should improve in the second quarter and on ground situation also there is a lot of improvement now in the second quarter.

Reema: The other concern is that your prepayment rate has jumped to a lifetime high of nearly 24-25 percent and that is on account of increased competition and you didn't want to lower your yields, so you let some of these customers go and prepay their loans. Could you take us through the outlook on that? Is this going to be a worry or are you willing to lower your yields?

A: In fact we found a stiff competition done by the commercial banks who are offering very low interest rate and there were a lot of takeover of loan and that is why we have seen about 22-24 percent of the prepayment  at an all time high during the first quarter but we have already passed on the benefit. If you see the cost of the fund, there were benefit of about 70 bps reduction year-on-year and the same thing we have passed on to the customer and now our average yield is only 11.5 percent and we are offering the best rate to the salaried customers as compared to any other housing companies today. We have already passed on the benefit. So we thought normally it is there and about two years back we saw similar situation and subsequently get stabilised and we are attempting to see that it is also brought down now.