For the next 12 months, Gagan Banga, vice-chairman and managing director of Indiabulls Housing Finance commits growth of 20-22 percent across parameters. If the economic situation remains the same, he sees 20-25 percent in FY17 and FY18 as well.
His book is split 60:40 on the liability side, with 60 percent of the company's funding coming from banks.
Considering that there has been two repo rate cuts from the Reserve Bank, he expects comparative pressures to result in prime lending rates coming down by 25 basis points by March-end or early April. According to him, soon home loans up to Rs 50 lakh will soon be priced atleast 25 basis points lower.
Below is the verbatim transcript of Gagan Banga's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: I am just reading a CLSA report which says that over FY14 -FY17 you could report 22 percent compound annual growth rate (CAGR) growth in terms of profit. Would that be reasonable number?
A: I would formally want to commit on the coming 12 months which is FY16. We have been guiding on an annualised basis for growth to be in the range of 20-25 percent across parameters. For the last four years we have been able to stick to it and quite conservatively in FY16 I expect the growth to be between 20-25 percent.
In normal market and if things are to remain the same I believe that we could extend that to FY17 and FY18 as well. Over the course of the next 2-3 years market conditions remaining the same we should be reporting growth between 20-25 percent.
Ekta: Can you explain to us what your composition of funding looks like right now? What was your incremental borrowing in the previous quarter and how have cost of funds changed for you?
A: As we speak on the liability book is split 60:40, 60 percent coming from banks and 40 percent coming from bonds. On the overall assets under management we also have 15 percent of our assets which are sold down to various banks and financial institutions. If we were to just look at assets on balance sheet on an incremental basis about 52 percent has been financed incrementally through bonds. The company had gone through a pretty significant event last July when all rating agencies had upgraded our credit rating. Has you are aware the bond markets have already rallied to the tune of anywhere between 50-80 basis points over the last 8-12 months. Clearly on that 50 percent of incremental borrowings we have that saving already coming in.
Thanks to the rating upgrade with a notch on up on a rating and we reaching the highest possible rating level not only has the acceptability of our paper but also the specific pricing of Indiabulls has already moved by another 55 basis points. Assuming a static interest rate environment and my sense is that savings could extend to about 70 basis points. So on this 50 percent there is unique saving of 35 basis points which is unique to only Indiabulls Housing and is not a market event. Then in due course of time as these repo cuts being done by RBI will come through on incremental basis. Banks are about 45 percent of our borrowings on stock it is 60 percent so we will be beneficiaries of the base rate cuts.
My sense is that has a company we would want to continue to keep margins at about 300-325 basis points which is where they are right now. So the savings which have already accrued through the bond repricing because of our ratings or over all bond market downward movement that is all being used today to spur growth. As result while our book on an annualised basis had grown by about 22 percent till September we used the additional savings to spur growth so in the December quarter the book had grown beyond 25 percent. The base rate cut would immediately get passed on to our borrowers.
Anuj: We have seen two rate cuts now from the Reserve Bank of India (RBI). Do you think now rate cuts will start flowing into the system and do you see a big impact of that especially in the affordable housing segment where you are present quite a bit? Do you think the overall disbursements and your credit growth over there would see substantial increase from hereon?
A: I would believe that competitive pressures would result in overall reference rates be it base rates or prime lending rates both coming down by at least 25 basis points. Almost immediately most of these cuts would happen towards the end of March early April. So for next financial year for the first quarter the market can safely assume that home loans upto Rs 50 lakh segment would be priced at least 25 basis points lower.
Overall if you were to look at home loans which are of slightly higher ticket sixe or loans against homes they have already being priced 25-30 basis points lower on an incremental basis. That generally is the way that market reacts to a downward interest rate environment. So incremental business is initially booked at a slightly lower rate and then book re-prices itself in due course of time.
Would this 25 percent spur more growth in the affordable housing I have maintained over the last 3-4 years that the momentum in the affordable housing space is already at a level where the market is growing by almost 24-25 percent. In this particular segment even price appreciation has been there of almost 10 percent annualised. My sense is that with this rate cut the market demand would probably grow past 25 percent and I hope that asset inflation does not go beyond 10 percent. My sense is that what the center is doing and what a lot of BJP, alliance states are doing is to enhance supply that should curtail the asset inflation.
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