Eyeing tier-II cities to drive growth: Repco Home Finance

The initial public offer (IPO) of Chennai-based Repco Home Finance hits the capital market today. Repco Home Finance is a subsidiary of government-owned Repco Bank and aims to raise Rs 270 crore via this issue.

The objective of this issue is to enhance capital base to meet future capital requirements and the company will target the under-penetrated tier-II cities to drive growth, managing director R Varadarajan said in an interview to CNBC-TV18. 

Also read: Subscribe to Repco Home Finance IPO, says Angel Broking

"A Crisil report says the penetration level of housing finance is very low. On the rural side, the penetration is only about 8.2 percent. So nearly 92 percent of the rural population is still left out of the institutional finance," he elaboarted.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Could start by telling your prospective investors what is the compelling proposition about Repco because there are other housing finance companies, which are listed in the market today, you are essentially a south Indian player. Why should investors look at your proposition?

A: We opened our anchor book yesterday and we are pleased to inform that the entire anchor book has been fully subscribed at the upper band of Rs 172. We have good investors like Goldman Sachs, Birla SunLife and Sundaram Mutual, Franklin Templeton, Reliance Capital and so on. About 13 investors have become our shareholders now.

Repco Home Finance is a housing finance company registered with National Housing Bank and it was promoted with Repco Bank, a Chennai based bank. The Crisil report says the penetration level of housing finance is very low. Particularly on the rural side the research report says the penetration is only about 8.2 percent.

So nearly 92 percent of the rural population is still left out of the institutional finance. Therefore the cake is so large that all the players should seriously think about it. So, a lot of scope is available for enhancing or scaling up our housing finance in that sector.

From the beginning Repco Home Finance is focusing on tier II and III cities and the peripherals of tier I cities. Even the non-salaried segment is an underpenetrated segment, therefore I feel that there is a lot of scope for that and buoyancy will be there for this sector.

Q: With an anchor subscription at the upper end of the band of Rs 172, would it mean that is where you will likely choose to price your issue as well?

A: It all depends on how the book is subscribed in the main book. I only wanted to share with you what is the anchor participation.

Q: One concern about your business is the kind of jump we saw in non-performing assets (NPAs). Would you say that is a trend you may have to live with over the next couple of quarters and do you see NPAs stabilising at the current levels or could we see some escalation?

A: I cannot give a forward looking statement. However, I can just say that these NPAs are more technical in nature as far as my company is concerned. I am serving a non-salaried segment where the income profile may be lumpy because they get good income in some months and not so good in some months. However, what I have found is ultimately they come and pay, so the company is very confident about managing the NPA.

Q: What is the cost of funding that you have and what kind of margins do you operate with?

A: The cost of fund as of now is 9.45 percent. The spread that we have achieved during September is 2.9 percent and net interest margins (NIMs) of about 3.8 percent. So we are able to maintain the NIMs at around 4 percent and spread at around 3 percent.