Now free to pursue growth after RBI's decision, says Indiabulls Housing MD

We have raised about Rs 3,000 crore from banks in the last 10 days, said Gagan Banga

The Reserve Bank of India (RBI) turned down the proposal to amalgamate Indiabulls Housing Finance with Lakshmi Vilas Bank (LVB) on Wednesday. Gagan Banga, vice-chairman and managing director of Indiabulls Housing, says this decision will set aside the self-imposed restrictions the company had laid down for the merger. In an interview with Hamsini Karthik, he said securitisation, co-origination of loans, and an asset-light strategy are the way forward. Edited excerpts:

Now that the uncertainty of merger is behind, how will the business shape up?

Over the last few quarters, we have been disbursing both home and retail loans to small and medium enterprises (SMEs) as loan against property (LAP). While we awaited the regulator’s decision on the merger, we were working on rationalising our developer loan book — an exposure the RBI is averse to — as well as rationalising our bank and domestic bond borrowings, which are liabilities a bank should not have. 

Following the RBI’s decision, these self-imposed restrictions have been dismissed and we are now free to 

pursue growth. We expect to increase our assets under management (AUM) by over 20 per cent, and net interest income and profit after tax in high teens. The business will continue to generate return on equity (RoE) in excess of 20 per cent.

How has the funding situation been? Have you utilised your existing lines of credit and received fresh loans from banks?

We have raised about Rs 3,000 crore from banks in the last 10 days. We have long-term funds in excess of Rs 56,000 crore, since the liquidity crisis struck the industry in September 2018. 

We continue enjoying high AA+ credit ratings, and access to funding from diversified sources such as banks, bond markets, and external commercial borrowings. Over the last 12 months, we have been working on our liability profile and reduced reliance on short-term commercial papers to less than 1 per cent of borrowings, from the earlier 15 per cent. 

Our net worth is Rs 19,000 crore and balance sheet (B/S) size is Rs 1.1 trillion. At 27.8 per cent, Indiabulls Housing has one of the highest capital adequacy ratios among all non-banking financial companies (NBFCs) in India. In addition, we have consistently maintained high liquidity and have over Rs 22,000 crore in cash, which is more than 20 per cent of our B/S and covers debt repayments due in the next 12 months. 

You’ve sold some portion of the wholesale loans in the last six months, to facilitate the merger. Will you restart lending to the segment?

We extended developer loans in two structures: lease rental discounting (LRD) and residential construction finance (RCF). While LRD has continued to do well, RCF faced a slowdown risk some years ago, following which we started de-emphasising on this asset class. 

We are consistently reducing this book. As said earlier, our focus is primarily on retail loans and not on restarting lending to new projects in wholesale developer loans incrementally. 

You have significantly altered your liability profile since December. What shape is it expected to take?

In the last 12 months, the loan sell-down market has really opened up. Under the co-origination model, we have tied-up with some large public sector banks. This affords us the opportunity to grow in an asset-light model with an optimally matched B/S. A third of our assets will be securitised, another third co-originated, while the final third will remain in our B/S. This asset-light model will be very RoE-accretive.

Has the operating environment for HFCs improved after recent steps by the government?

Regulatory interventions such as reducing the risk-weight for portfolio securitisation, introduction of co-origination framework with banks, refinance support through the National Housing Bank, partial credit guarantee scheme, and last-mile funding for stalled projects are all steps in the right direction to provide liquidity support. 

While the RBI’s decision on the proposed merger with LVB is disappointing, the pressure on the stock since the merger was announced in April, will now ease. The firm continues to remain on a strong footing and is among the strongest NBFCs in India. The recent public interest litigation against the company is based on fabricated allegations, and we are working on getting it dismissed in the courts.