Growth for the company slowed down in the third quarter to 20-21 percent from 25 percent due to demonetisation and Q4 growth would also remain around similar levels, says V Raghu, ED, Repco Home Finance, adding that pickup would be witnessed in next financial year.
The Securities and Exchange Board of India (SEBI) on Thursday raised mutual funds' investment exposure limits in the housing finance companies. Debt mutual funds can now invest up to 15 percent of their total net assets in housing finance companies. Earlier, they were allowed an exposure of up to 10 percent.
Welcoming the move V Raghu, ED, Repco Home Finance said the move could help them raise more resources in the coming year.
Moreover, with the savings pattern of public changing and with them looking at investing more into financial sector than gold and real estate, lots of funds are available with MFs and asset management companies (AMCs). All this gives a company like Repco lot of opportunity to raise resources from mutual funds.
With regards to gross non-performing assets, he is confident of lowering them in the fourth quarter but says the demonetisation effect may still be felt in the next two quarters.
Growth for the company slowed down in the third quarter to 20-21 percent from 25 percent due to demonetisation and Q4 growth would also remain around similar levels, says Raghu, adding that pickup would be witnessed in next financial year.
According to Raghu, the net interest margins would remain around the 4 percent levels going forward aided by reduction in cost of funds.
Below is the verbatim transcript of V Raghu's interview to Latha Venkatesh & Sonia Shenoy.
Latha: How will Sebi's new rule affect you?
A: It is a welcome move for companies like Repco Home. Off late we have been into borrowing through money market instruments and this addition exposure of 5 percent on the debt instruments, at least housing finance companies, whose instruments are rated AA and above, it is a welcome measure and we should be in a position to raise more resources through them and since it is a long-term fund, it is a welcome for all the housing finance companies and that should help us in raising reserves in the coming year.
Sonia: What percentage of your borrowings currently comes from the capital markets and because of this new rule how much could it go up to?
A: At the end of December we had 11 percent of borrowings through non-convertible debentures and another 3 percent through the commercial paper and since this market provides a good opportunity, we should be in a position to increase this limit over a period of time given what is going to be the pricing of these instruments. If it is competitive, we should be increasing it from the present 14 percent -- definitely higher than that.
Latha: How does this compare with bank loans because over the last one month's especially after the RBI policy yields have gone up but banks' marginal cost of lending rate (MCLR) have fallen? So what is a difference in cost for you?
A: The issue of commercial paper (CP) which we raised for around 7.10 percent or even less than 7 percent mark, we have raised CPs. As far as banks' MCLR are concerned, they are still hovering around 8.35 percent and 8.5 percent. So, to that extent definitely this is comparable and much cheaper for us and depending on the fund position, we will definitely utilise this opportunity.
Sonia: Can you tell us how much can it release into the system in terms of total funds?
A: I don't have an estimate as to how much fund is available but one thing is sure because the savings pattern of the public has changed now, they are more into the financial sector investments rather than the real estate or gold. As it is a lot of funds are available with these mutual funds and asset management companies, fairly a large sum should be available for them and because they also have scheme exposure of 35 percent. All these things for a company like Repco Home, which is a new entrant; we are nowhere near the cap. We still have a lot of opportunity to raise resources from these mutual funds.
Latha: I also want to ask you about repayments during the demonetisation quarter. It hit you all hard. Have things improved. Will you post lower gross non-performing loans (NPLs) this quarter?
A: We expect to post lower NPA during the current quarter. However, demonetisation still continuing, it probably could take a couple of quarters; this quarter and the first quarter of the next financial year because the overall economic improvement is also required for the self-employed segment. Repo Home has large exposure to the self-employed segment. It is because of that and we are confident that we should be in a position to reduce our gross NPA level during the current quarter.
Sonia: In the loan book, I want to understand from you, what the growth has been post the demonetisation impact in the non-salaried and salaried segment. Where are you seeing higher amount of respite?
A: As far as growth is concerned, it has been more or less uniform between the salaried and the self-employed segment for companies like Repco Home Finance is concerned though we have estimated right at the beginning that there could be a slowdown in the growth because of demonetisation and that has been reflected in our Q3 performance where we used to post a growth of around 25 percent. We have shown growth of 21 percent during Q3 of the current year. However, we expect the same trend to continue during the current quarter before we pick up business in the next financial year.
Latha: You said your home finance business grew by about 20 percent in Q3. What will be the annual run rate this year and what will it be in next year? I am trying to gauge the underlying momentum of growth?
A: We expect the business or loan growth to be around a level which we have experienced during the current financial year. However, in the next financial year we hope to get back to previous year's levels of around 20-25 percent growth.
Latha: How will margins pan out on an average for this year compared to last year?
A: As far as margins are concerned we should be in a position to reach the level we have been maintaining during the last couple of years. However, as long-term objective we still have that net interest margin of around 4 percent. So there could be some minor deviations in that but we should be in a position to work around that because of the reduction in the cost of funds.