Fully prepared to meet any impact of RBI and NHB guidelines

In the second half of the year, we were able to pass on the interest rate to the customers by increasing the lending rates slightly. That led to the improvement in margins, said Yashpal Gupta, MD & CEO, Repco Home Finance, in an interview with ETNOW.Edited excerpts:Your company reported a strong profit of 58%, however, your NII was just 2.5%. What led to a strong profit but slow NII growth? On the profit front, we have done very well. In fact, on year-on-year also, we have grown 17%, Q4 to Q4 we grew by 58%. The NII, of course, was under pressure because of heavy competition from other players, especially during the first part of the year from the banks. We had to reduce the rate but as the second half came in, the competition reduced because of the problems being faced by the other competitors. Plus, we were able to pass on the increase in interest rate. The NII basically reduced because of the competition from the banks as cost of funds were lower. But we still maintain good profitability by maintaining lower reserve provision for the NPAs by reducing the NPA or maintaining at the same level. The second thing is, we have shifted during the year from the Indian GAAP standards to IFRS, the IndAS and that has also had an impact on provisioning. But I would say, considering what the market was going through in terms of liquidity position and overall NBFC sector facing the problem and transition to IndAS plus the last quarter, there was some slowness in the market due to elections. Despite all that, 17% growth year on year in profitability is quite good. What about margins because they also have improved about 10 bps sequentially? What led to the improvement despite the liquidity issues? What is the outlook on margins and how do you see a borrowing mix change for FY20?In the second half of the year, we were able to pass on the interest rate to the customers by increasing the lending rates slightly. That led to the improvement in margins. In fact, if we look at the new business, the margins are 15 to 10 bps higher than what is there in Q3. That led to the increase in margin and we are hopeful of maintaining 3% plus margin in the financial year 19-20 also. As far as the borrowing mix is concerned, we are quite dependent on the banks and even though the NBFC sector as a whole is facing problems, the banks are quite comfortable with us. During Q4, we also got sanctions from NHB for refinance, of which we do Rs 300 crore. But considering that the bond market is not so good at this point of time, we do not see any change in the borrowing mix. At least for the current year, we will rely on the bank borrowing and in refinance. What kind of loan growth are you targeting for FY20? Which are some of the regions that you will be focussing on as well for growth?The overall growth that we are targeting for the current year, that is net book growth, is about 14% to 15%. The Tamil Nadu market has been quite low during the last two years. In fact, last year also, the Tamil Nadu growth was only 6%, whereas rest of India grew by 22%. Rest of India means where we are present in other parts of southern India like Karnataka, Andhra Pradesh, Telangana and parts of western India like Maharashtra and Gujarat. These are the areas we will be targeting. Plus, we have opened in the last quarter of the financial year, a few branches in Rajasthan and also in Madhya Pradesh. We expect to grow in those areas also. But Tamil Nadu continues to be our biggest market because they have 56% share. The growth rate is expected to remain muted. Overall we are targeting 14% to 15% growth rate. In real estate sector, are you seeing rising risks of NPAs especially in your LAP book when it comes to FY20?Yes, there are risks in the real estate sector but we expect that with the new government coming in and RBI reducing the rate of interest, the banks have so far not transmitted the cut. If this cut is transmitted and we hope that it happens, we expect Government of India to move ahead with full reforms but yes the real estate sector is facing challenges. As far as the NPAs on the LAP book is concerned, as per our business model, we do not finance SMEs or the companies. Our borrowers are individuals. They may be owners of SME companies. They may be owners of private limited companies but they are borrowing on their individual capacity.We do not see there will be surge in the NPA, in fact we expect in the current year NPA levels should go down actually.What kind of disbursement trends are you seeing in the Tamil Nadu market and what really is the outlook going forward of the kind of growth that you foresee in the state?As I told you, Tamil Nadu continues to remain muted even now. The growth rate is very low, at about 6%. This year also we are not expecting more than 10% growth rate because of the other problems. But we expect to grow higher in other parts of southern and western India. Tamil Nadu remains a challenge for us.You talked about the LAP book. What about the GNPA ratio? Also, what is the outlook going forward on the home loan book side?On the LAP book, the GNPAs are about 5%, the housing loan book is about 1.8%. Overall, it is 2.95% as in March and going forward, we expect to maintain or actually reduce. We have given the guidance of about 2% for the next financial year by the end of March 2020. But what I want to clarify to you is that unlike the banks, our NPAs are because they are individual customers even after becoming NPAs. More than 60% of the NPA accounts continue to pay one instalment or two instalments intermittently. Of course, because the NPA definition is a water tight compartment of 90 days, they are not able to come down to below 90 days to be classified as standard. But still they continue to pay. In fact, in the last financial year, 60% of our NPAs paid some instalments. While NPA is a concern but fortunately for us, it is not having that big an impact on our P&L as because our ROE is still close to 18%, our ROA is about 2.2% for the entire year which is one of the highest in the industry. While NPAs is an area of concern, in terms of profitability they are not affected much. On the liquidity front also, while many NBFCs and HFCs are facing problems, we have no problem, we have met all our repayments on time. In fact, as of March, we have Rs 1,100 crore of undisbursed sanctions and about Rs 3,000 crore of fresh sanctions lined up in the next few quarters. So, I would say on those fronts, we are doing reasonably well.RBI has come out with liquidity related norms for NBFC as well. Generally, NHB tends to issue a separate notification. Do you see any impact of this?Yesterday, NHB has issued a notification for all the HFCs to appoint a chief risk officer, that we will appoint shortly. The second part as far as liquidity coverage ratio is concerned, so far NHB has not issued any circular to the best of my knowledge. But if it is issued, I have seen the RBI circular and I definitely feel that the NBFCs and HFCs have to maintain liquidity coverage ratio. But when I go through the details, there are some aspects which are probably not relevant to NBFCs and HFCs. To that extent, they have gone along with what they are doing for banks. For example, they have put a dynamic ratio that you have to monitor on a daily basis. Unlike banks, which have large CASA deposits and working capital lending where the asset liability mismatch changes on a daily basis for NBFCs and HFCs, it does not change on a daily basis. So, daily monitoring will be probably a tedious task. The second thing they have said is that you have to invest in either government securities or keep cash. If we invest in even bank deposits, there will be a haircut of 20%. Now NBFCs and HFCs keep money with the banks only. While I agree that theoretically banks do not have a sovereign risk, they have a higher risk than sovereign risk but probably there RBI can give some relaxation. The third part is that in our business model particularly, there is a contractual maturity and there is actual maturity. For example, in our company last year, our normal repayments were only Rs 700 crore of loans but prepayments were close to Rs 1,000 crore. In the calculation of liquidity coverage ratio, should we take the actual repayments or should we take the behavioural repayments? I think we need to have clarity on this but overall I still feel for our company, the impact will not be much because we have done some back-of-the-envelope calculation that we need to maintain about Rs 250 crore on an average basis throughout the year, Now Rs 250 crore, even if we lose our 3-4%, works out to only Rs 10 crore per annum which if we take after tax will be Rs 7 crore of loss or reduced profit. That is only 0.5% of the equity base and so the effect will not be large in terms of financial numbers.But yes, in terms of putting in place systems and procedures for somebody to monitor it on a daily basis, setting up a full-fledged treasury department etc, costs will be high. We hope that when NHB comes out with the guidelines, they will keep this thing into account but as far as the impact is concerned, we are fully prepared.

from Economic Times http://bit.ly/2HJsNG5