In an interview to CNBC-TV18, Gagan Banga, Vice Chairman & Managing Director of Indiabulls Housing Finance, spoke about the results and his outlook for the company.
Can you take us through the quarter that went by. 34% is a mind-boggling pace of growth. Is this maintainable. How does FY19 look?
We have been guiding for profit growth of between 20 and 25% and loan book growth of around 30%. The last two years we have been managing to grow the book between 30 and 35%.
This is largely because affordability in the housing space from a consumer point of view has been steadily improving, prices of homes have been flattish, interest rates have been down. Ever since the subsidy programme kicked in, it has been meaningfully cheaper for someone to buy a house.
Specifically from Indiabulls Housing point of view, all of our digital initiatives are helping us build a lot of number of loan growth. So that is the whole focus area of the company.
It took us about ten years to get in to million customers and it should take us just about two-two-and-a-half years to get the next million customers. This is largely because of the digital initiatives that we have taken, which allowed us to engage with relatively smaller borrowers without impacting our cost income.
The other important thing is that the competitive landscape is extremely benign and a large part of the banking system is caught in its own issues.
So between competition digital and affordability, I think we have a pretty good headroom to grow and FY19 should be no different. So profit should be compounding between 20 and 25% and book should be growing between 30 and 35%.
On a slightly lighter note, there was WhatsApp video where Indiabulls employees were quite aggressive. That was an interesting campaign. You pulled it down. What was wrong with that campaign? It was generating quite a bit of mojo on Twitter and WhatsApp.
It's good thing to know that employees are excited and they are pushing what they supposed to be doing. So to give you a background, we have been setting up kiosks for Credit Linked Subsidy Scheme, a scheme under the aegis of 'Pradhan Mantri Awas Yojana', as it's very attractive for a salaried person to be taking a home loan.
We are trying to do a reach out programme to them rather than just wait at either the construction site or in our offices. As part of that, one of our employees choose to be rather adventurous.
We strongly believe as a company that home buying is amongst the most significant, if not the most important investment decision, most families in India make and there has to be a certain level of discretion as a lender that we need to exercise.
We have to focus on servicing them but we also have to respect their decision. Which is why management choose to calm down heavy and while we appreciate the excitement, discretion has to be exercised as well.
How much of your loans book comes from the CLSS, affordable housing category, the ones that as subsidised?
About 80% of the loans that we would be doing by number would be qualifying for the subsidy scheme. The subsidy scheme has been massively expanded. It covers now income profile as high as Rs 18 lakh. Our average borrowers’ income profile is about Rs 10 lakh.
Not qualifying. How many actually got because NHB and Sudhin Choksey of Gruh Finance gave us a very different impression that they are not getting the money in time from the subsidy and therefore not many loans have gotten cleared for subsidy. Eligibility is one thing. How many got it actually?
I think after the initial teething period which lasted till about November, since then the subsidy disbursal has stabilised. Obviously, both at our end as well as the National Housing Bank’s end, they have to exercise due caution.
It is money being put into peoples’ account, so necessary paperwork is checked two-three times over, but from logistics point of view or from money availability point of view, there is no concern. I was rather happy to see that towards the second week of March, there was a meeting held with senior officials at the ministry to figure out if there was any problem and towards the end of March massive money were disbursed.
What percentage of your loans?
A: About 40% of my borrowers would have got the money.
The reason I asked you is there is always a fear in investors and regulators’ mind when something grows too fast and 34% loan growth would qualify that. As well just last week the Reserve Bank of India’s Deputy Governor in charge of banks and non-banking financial companies (NBFCs), N S Vishwanathan actually cautioned banks that this herd mentality of going retail is not a good idea. I just want to know would you worry that this is too fast a growth and then you had your employee being overexcited and you had to pullback. Would you worry about loan quality because of the speed of growth?
If we look at how the entire housing market has evolved, the regulator has been extremely vigilant. There are very tight loan to value caps. There are some or the other guidance notes coming on valuation. There is adequate equity which is there. Housing prices in India have been flattish. So my sense is as long as there is granularity and that kind of rigor in the book where the whole focus is on trying to build granularity.
Loss given default historically has been 2-3 bps with the kind of equity built in, the kind of equated monthly installments structuring which is done in India where a part of the principal keeps coming back every month and thus the equity keeps building up over 20%.
My sense is the core housing portfolio will continue to perform well. As a company, we also have a philosophy that while there is growth, we have to invest in counter cyclical provisions.
So we are carrying about 80 bps of excess provisions of the balance sheet just to make sure if tomorrow there is any kind of a blip, we are still being able to deliver consistent results for stakeholders.
So between our provisioning policies and the granularity of the book, one is comfortable that the last ten years that we have done, now it’s close to 40 quarters where we have been compounding at this space, our earnings between 20 and 25%. I am quite hopeful that we should be able to do it at least for the next two-three years.