ET Now: The Q3 AUM growth was about 32 per cent. What is the overall loan book growth and where do you see that could stabilise for the next two to three years?
Ashwini Kumar Hooda: From a long-term perspective, we will grow between 25 to 30 per cent. We have been able to grow faster than 30 per cent for the last two years on good structural volume in selling of entry level houses. Affordable housing has been compounding. It was around 33 per cent in FY17 and we believe, this financial year, it would be closer to 35 per cent. So, from that perspective we have been able to grow at 30 per cent plus. Our own sense is that growth should accelerate from here, which will allow us to compound at 30 per cent plus or thereabout.
ET Now: Your home loan accounts for 60 per cent of the total book. How has been the mix between home loans and the LAP book and how could it shape up going forward?
Ashwini Kumar Hooda: Indiabulls Housing has been getting rating upgrades from both international rating agencies– S&P and Moody’s, as well as from domestic rating agencies. We have tried to pass the additional benefit on our bond yields decrease by increasing the composition of home loan in our book. As we speak, we are 60 per cent home loan, 20 per cent LAP and 20 per cent construction finance. Two years back, it used to be as 50 per cent home loan and 25 per cent each of LAP and corporate loans. We believe that the optimum mix for the company is 66 per cent home loan, 17 per cent loan against property and 17 per cent corporate mortgages, which we should be able to achieve by FY20. So, by March 2020, we should be at our optimal where two-thirds of our book is in the form of home loans.
ET Now: Banks have started hiking MCLR. What percentage of your borrowings come from banks and by how much do you see your cost of funds increase thereby?
Ashwini Kumar Hooda: Banks contribute less and less of our incremental cost of funds. To give you a perspective, in the first nine months, almost 82 per cent of our funding has come from the bond market, around 11 per cent of funding has come through securitisation and hardly 5-7 per cent has come through the banks. Primarily, we borrow from the bond market which is, over a very long-term, always cheaper than the intermediate structure like a bank market.
ET Now: There are many concerns over margins coming under pressure for you. Where do you see your margins close in for FY19? Will you be passing over a higher borrowing cost to customers thereby charging a higher yield?
Ashwini Kumar Hooda: We, as a lending institute, is purely pass-through, so the benefits or the cost increase we experience, we pass it on to our customers. If the higher yields, that we have seen in the recent past, sustain going forward in the next financial year then a part of that will be passed on to the customer. I do not expect it to be a huge number, but we have already seen other banks increase it between 15 to 25 bps and we would also be increasing in that ballpark number.
ET Now: How do you see property prices shaping up in key markets and what kind of impact that could have on your entire portfolio?
Ashwini Kumar Hooda: Real estate is many markets. If we are talking about entry level, where home prices are up to Rs 40-50 lakh, that segment has been doing well over the last three, four years, while overall real estate scenario has been weak. Most of the weakness is stemming from the premium end of the housing where there is oversupply but demand has been sluggish, partly due to the oversupply and partly due to the recent events around demonetisation, GST and the introduction of RERA. So, all these events had put a lot of pressure on high end apartment consumption. Mid-market also has been slow but in the recent past, we have seen it grow and thus we believe that the mid housing would show good result over the next financial year, whereas premium end of the housing may start doing well in more like 18 months from here.
Ashwini Kumar Hooda: The stake sale to GIC and OakNorth was driven by the fact that the entire capital that we have in the housing business is for the housing opportunity. The opportunity is so large that we did not want to diversify or divert any of our capital. We had invested two years back a $100 million in OakNorth Bank for a 40 per cent stake. We have sold one-third of our stake in the bank and recouped the entire investment. There is still a balance 20 per cent stake in the OakNorth Bank which is more of a strategic investment and may, if it all we exit, will be exited at a much later stage. As of now, the rationale for 10 per cnet stake sale was simple to recoup all our investments that we had done.
ET Now: What is the scope for improved return ratios and what, according to you, would be the key drivers?
Ashwini Kumar Hooda: Indiabulls Housing is one of the most profitable and highest ROE producer in the market. Our ROE for this year is 28 per cent plus. At the balance sheet size of around 1.3 lakh crore and profitability of around in excess of 3,600 crore, we continue to improve on return on equity by around 1-2 per cent every year. That is being driven partly by the growth in the home loan business where this year, for example, first nine months we have grown at almost 38 per cent.
ET Now: What about the brank expansion plans? Do you have any inorganic growth plans lined up?
Ashwini Kumar Hooda: We do not see any opportunity of size which can help us achieve two to three years’ growth. For example, in the coming financial year we will grow by something like 40,000-45,000 crore and we do not see many opportunities to give us two years growth of 80,000-90,000 crore. From a branch network perspective, we have been going into tier-3, tier-4 cities where we have opened 80 new smart city offices. We call them smart offices because they are purely technology based. Whether it is our internet based end-to-end digital e-home loan solution or digitisation of customer record, we send all for central processing. These are very low cost branches that have gone into smaller cities where the business size may be low. Because of the low cost to income ratio, we are able to service those locations, otherwise, we would have gone to these cities only three, four years later.