Would like to see 10-12% of funding met by public deposits: CEO, LIC HF

Most of our funding, around 52-53%, is through NCD issues, says Adhikari

TRIBHUWAN ADHIKARI, managing director and chief executive officer of LIC Housing Finance — a deposit-taking, upper-layer non-banking financial company (NBFC) — discusses the strategy to reduce non-performing assets (NPAs) in an interview with Manojit Saha. Edited excerpts:

The Reserve Bank of India (RBI) has recently stated that NBFCs and housing finance companies should reduce their dependence on banks for funding. What percentage of your funds come from banks?

Regarding LIC Housing Finance, only 32 per cent of our borrowings are from banks. We operate as a deposit-taking NBFC. Most of our funding comes through non-convertible debentures, accounting for approximately 52-53 per cent of our funding.

We have the mandate to accept deposits, but only 5-6 per cent of our funding comes from this source. This is an area we can explore and promote.

Ideally, I would like to see 10-12 per cent of our requirements met through public deposits.

Total disbursements in the 2023-24 (FY24) first quarter (Q1) fell to about Rs 11,000 crore from Rs 15,000 crore. Both the individual home loan segment and project loans declined on a year-on-year basis. What was the reason for this?

Q1 disbursements were lower for two reasons. First, LIC Housing Finance underwent a major organisational restructuring, transitioning from a four-tier structure to a five-tier one. We introduced a new tier, cluster offices, situated between the back office and the area office, to enhance servicing standards.

The process of moving files from the area office to the back office was time-consuming, and the back offices handled loan sanctions and disbursements. Also, since one back office was responsible for too many area offices, managing a large number of cases became problematic.

Additionally, we opened 50 new area offices, mostly in Tier-II and -III towns. The restructuring necessitated substantial manpower redeployment, which took time to settle.

We also implemented a major technological update, transitioning from our older system introduced in 2012 to a new one, which presented some challenges. We anticipate no further disruptions in the second quarter.

What is your loan disbursement projection for the current financial year (FY24)?

Our guidance was for 12-15 per cent growth, and we continue to maintain that guidance.

NPA numbers are currently at elevated levels. What measures are you taking to reduce them?

As of June 30, our gross NPA ratio was 4.98 per cent. As I said, the new technology platform caused some issues, but those have been resolved. We are now well-positioned. However, we are concerned about the high gross NPA numbers; 4.98 per cent is unacceptable. Ideally, it should be around 2.7 per cent or at most 3 per cent.

We haven’t been aggressive with one-time settlement (OTS) and haven’t explored sales to asset reconstruction companies (ARCs) until very recently. Our board has approved an ARC policy, and we recently met with ARCs.

We are now focused on the OTS route and have initiated a special recovery campaign for NPAs where we are willing to negotiate on the additional interest part. By the third quarter, we should be closer to the 3 per cent target.

LIC Housing Finance’s net interest margin (NIM) increased substantially in Q1. Do you believe such levels can be sustained?

The RBI repo rate hike was passed on to consumers, and its full impact was felt in Q1. We anticipate that a NIM between 2.5-2.7 per cent is sustainable.