Will be mindful of bond borrowing we do and to whom we issue bonds: Gagan Banga, V-C, Indiabulls Housing Finance | Interview

Published: November 1, 2019 2:21:52 AM

The last 12-13 months have allowed the management to reflect on the weaknesses in the entire chain, says Gagan Banga

Gagan Banga, indiabullsGagan Banga

Indiabulls Housing Finance (IHFL) suffered a setback with the Reserve Bank of India (RBI) turning down its proposed merger with Lakshmi Vilas Bank (LVB). Gagan Banga, V-C and managing director, IHFL, speaking to Anwesha Ganguly, outlined the mortgage financier’s strategy to reinvent itself. Edited excerpts:

Are you still looking to become a bank now that RBI has rejected the proposed merger with LVB?

The board has not discussed the matter. We will continue to remain a mortgage lender. How we choose to evolve structurally or otherwise is a decision we are yet to take.

Given the challenges in the NBFC sector, how do you plan to grow?

The last 12-13 months have allowed the management to reflect on the weaknesses in the entire chain. Based on that, we came up with a business plan which hinges on loan assets-under-management (AUM) growth of 20% and limited balance sheet growth. The company has to leverage its core strengths — people-based and physical distribution network and capital, which is at `18,000-19,000 crore (as of September 30). We will partner with banks by way of co-origination and securitisation. We are essentially making the IHFL balance sheet a throughput one.

What range of ROE are you looking at?

On a longer term basis, 20-25%. On an incremental basis, the wholesale book (currently around 20% of AUM) will effectively de-grow, and for some time, while loan AUM could keep growing, balance sheet could de-grow. This will effectively happen over the next 6-12 months. From a profit-reporting perspective, we will be flattish, and eventually increase, but nothing needs to nosedive.

Three bonds traded at unusually high yields on October 17.

The email we got from BajajAllianz General Insurance said those trades were entered erroneously. The NSE reporting platform for bond trades shows that the trade was not settled. Bond markets in India are extremely shallow… Here, the trades tend to stop and then no one knows how you get to an appropriate pricing. When we plan for the next leg of our balance sheet growth, we have to be mindful of these facts. Credit ratings in India are still not considered to be a perfect reflection of the credit profile of the company. The corporate treasury can be reasonably whimsical. Given these nuances, we will have to be extremely mindful of the bond borrowing we do and of the counter-party to whom we issue bonds.

Which banks are you in discussions with for co-origination model of lending?

We are doing the testing with Bank of Baroda. With a few other [largely public sector] banks we are in the process of arriving at financial arrangements. Eventually, we want multiple arrangements across the risk profile so we can maximise the throughput of customers. In the next 3-4 months, these relationships will be stitched up. SBI is in very advanced stage.

Banks, we are told, are recalling loans to certain sectors. Is it true for you as well?

No. Banks are lending, they are just mindful of not giving general working capital and focusing more on the end-use of the capital. We have successfully kept our liquidity at about 20% of borrowings and of balance sheet levels over the past 12 months. We are working with our banking partners to ensure that liquidity on the balance sheet is retained, and whatever unique structures we can create on a bilateral basis, we are doing that. Broadly speaking, we have around Rs 40,000 crore in bank borrowings, Rs 30,000-odd crore would be bonds and Rs 10,000-odd crore in ECBs.

Has Sebi reverted on the share buyback?

We have sought their opinion on debt to equity ratio post share buyback applicable to IHFL. The clarification has not yet come.

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