It has been a tough environment. While we are seeing a profit decline of 40%, margins look to be better. Can you talk to us about the slight increase in pro forma gross NPA? What was the overall performance in Q3?
Yes, the striking thing about the last four to six months has been that the macro for the residential real estate has really turned and demand has picked up. We have all been reading reports that Mumbai witnessed property registrations which were at an eight-year high and this trend is there across the country. That is clearly supporting the portfolio both on the retail as well as the wholesale side. The retail side is witnessing robust demand and that allows us to disburse quite freely. On the wholesale side, it is accelerating the sales at the various projects that we have financed and it is supporting both the construction as well as allowing us to get our money back faster. I would say that the big driver for the stable asset quality is the turnaround in the macro.
The collection efficiency seems to have improved. What has led to this rise in pro forma NPA to about 2.4%? How much provisioning cover do you already have?
The company has been following a strategy where it is consolidating its wholesale and as that happens, the overall loan book as well as the AUM have declined. If we had not caused this decline, we would have continued to remain stable or grown. The NPAs would have actually been only about 2.06%.
In the background, the book has been declining on the basis of our strategic initiatives. It is actually a very robust number in absolute values and the NPAs actually declined. On the other hand, the NPA is reasonably and proportionately spread out between individual and non-individuals, the humps that one had seen in terms of certain NPAs that we had to classify in to accelerate recovery. A large part of that has already been done.
The provisioning that we carry is in the ballpark of about 3.5% against an NPA of 2% on an overall loan book basis. Over the course of the last 18 months, we have done a lot of accelerated write offs and recoveries from that. If they have factored it in, then we are holding almost 5% of the loan book as provisions. It is a very comfortable provisioning cover that we have, almost two times of the gross NPA and on top of that we also have a 30% plus capitalisation.
The company has guided an AUM growth of 20%. Plus, we have IHFL’s plan to start investing through the AIF platform by September 2021 and plans to reduce the wholesale book as well going ahead. Could you take us through the AUM outlook and the strategy for the wholesale book as well?
Rather than pegging a number where the book would grow by X or Y percent, we have detailed a few building blocks which are going to be our areas of focus over the medium to long term. As far as the medium term is concerned, which is the next three-four quarters, we have detailed that we would like to get into a capacity to do retail disbursements of about Rs 1,500 crore by September of this calendar and by March of next calendar or by the end of the next fiscal we should be doing about Rs 2,000 crore of monthly disbursals.
So that is strategy number one and around that, in terms of people or branch or technology additions that need to be done are going to get done. The other thing we have detailed is that we would be reducing our wholesale book by 33% by December. The big picture strategy is to make sure that the wholesale book is declining, the retail book is growing and the mathematical outcome of that over the near to medium term will determine the growth of AUM.
The company would intend not to abandon the wholesale opportunity of doing early project finance. We will pursue that strategy in an AIF (alternative investment fund) structure along with a partner or an institution and that is the platform. We hope that like quarter two of the next fiscal, that platform will start investing. We are at that stage where we should be making our regulatory applications by the end of this quarter or early next quarter.
What is the rationale for investing through the AIF platform versus what the company is doing currently?
Our realisation is that as an NBFC, the funding structure to do project finance is inappropriate. Our borrowings are largely from banks which give us money in term loans. They would like the monies to be used for onward lending of home loans or MSME loans. Any project finance will require some sort of flexibility, given the uncertainties around permissions or other factors which can potentially lead to construction delay.
Therefore, we have concluded that a fund structure is more appropriate where a partner fund which appreciates the nuances of project finance and brings in 80-90% of the capital. We do the heavy lifting in terms of the origination, the appraisal and putting up a note to the credit committee where the foreign institutional investor has a veto. We manage the portfolio thereafter and earn a fee. The whole idea at this point in time is for the company not to focus solely on net interest income but to look at sources of fee income. This will be an interesting source of fee income.
At the other end, the objective is not to look at balance sheet growth but to look at an AUM growth. This ties in extremely well with our asset light model and also eliminates any illiquidity risk that one runs if one has a wholesale portfolio on the balance sheet.
Will the company also be investing into the AIF? How much would that capital investment be?
We would be a minority investor at this point in time. It seems that we will be investing 10-15% and 85-90% would be bought in by our partner investor.
You have a sufficient amount of capital on the books. Would you be looking to raise capital in Indiabulls Housing going ahead?
For a balance sheet like ours, we will require regular infusions of capital. At a point in time, we are generally enabled by both shareholders as well as the board to be able to raise $200-300 million of capital. When we are close to a transaction, we will share about the structure but the company would always be on the lookout to raise some capital.
