By Ankur Mishra
Indiabulls Housing Finance is not chasing balance sheet growth, instead, it is focusing on increasing disbursements, partnerships and growing client base by 1.5 times in the next two years. The vice-chairman, MD & CEO Gagan Banga tells Ankur Mishra that he expects to compound net interest income (NII), return on asset (RoA) and return on equity (RoE) of stakeholders in the next 10 years. He also says that the impact of Covid-19 has been limited so far. Edited Excerpts:
Has there been any business impact due to the second wave of Covid-19? How has been your collections after March?
As far as collections are concerned, April was a fairly stable month. In the last 30 months, we have adopted a strategy of de-growing Indiabulls portfolio. The vintage of our portfolio has significantly increased. The vintage is as much as four years. There is a lot of positive bias for our borrowers to continue to service this loan efficiently. If any individual has to do cashflow allocation, this type of loan would be the last loan that they would not serve. We are benefiting from the fact that it is a secured portfolio. All in all, while collection efficiency may have declined by 100-125 basis points since March, it is not a kind of earthshattering impact.
Will you continue to focus on strengthening the balance sheet or FY22 will be a year of growth?
We are trying to make a very good base for the asset-light model we have created. So, to have a good base we have to focus on fortifying our balance sheet. We have raised around Rs 3,800 crore of capital and our capital adequacy ratio is over 30% till March 2021. Secondly, our fortified balance sheet is signified by a large quantum of liquidity. So, we continue to carry around Rs 12,000 crore of liquid cash, which is largely parked in bank accounts and fixed deposits (FDs). And the third thing in terms of fortification of the balance sheet is by provisioning levels. So, the goal is to get to the provisioning level of about 5% of the loan book, compared to 3.7% of the loan book. That will create a very solid base for the next 5-10 years. The version of Indiabulls that we are trying to create is the replica of what was created in the 10 years of 2008-09 to 2018-19.
Do you mean to say that the slow growth rate will continue for some time?
I am not saying we are going slow, but the parameters on which we are evaluated are more around disbursals. We aim to reach Rs 2,000 crore disbursals per month. What we are not targeting is the balance sheet growth, which is the classic way in which the prospects of the lending business are evaluated in a typical way. The balance sheet growth is not something that company is chasing. What we are chasing is disbursal growth in an asset-light model.
What will grow and the compound is our customer base, our net interest income (NII), our return on assets (RoA) and returns on equity (RoE). If the balance sheet is to degrow, while all other parameters are increasing, I will be more satisfied, compared to the growth led by the balance sheet.
What I am very clear is that Indiabulls Housing Finance’s strength is to be able to build a retail focus, technology-enabled, low-cost customer acquisition and servicing platform. In that, I have to collaborate, because there is a capital requirement, that will largely be provided by my partner bank or non-bank.
We do not want to provide that capital. We will provide the technology, the distribution, the servicing capability, the credit appraisal capability and so on. That is what we are bringing to the table. If we are not bringing debt capital to our table why will our balance sheet grow? It’s a paradigm shift in the way we are conducting our business. The stakeholders will appreciate in due course of time.
How do you plan to implement your strategy? Is there any specific target for the coming years?
As to set a clear milestone, I have set two goals. One for fiscal 2022, that by end of the year our monthly disbursements will be Rs 2,000 crore and for FY23 our client base will expand 1.5 times in two years. As an outcome of that, the expectation is over the next two years, we are also able to compound our earnings.
What is your outlook on asset quality and credit cost in FY22?
These are extremely uncertain times. I always say that plus-minus 50 basis points (bps) in non-performing loans (NPLs) can always happen. At the same time as far as credit cost is concerned, I expect that our credit cost in the current year will be in the range of 100 to 125 bps.
Do you plan to raise more capital in FY22?
If rating agencies will find that further capital infusion will accelerate the cause we will go for it.