The NII number has declined for IB Housing. What has led to the growth in profits and declines in NII? Do you think that provisions are sufficient to give any slight increase as far as gross NPAs are concerned in the coming future?
The strategy that the company adopted last year was one of safety and caution. There were essentially two parts to our strategy last year. One was to concentrate on strengthening the balance sheet to make it even more potent. As we did that, we worked on raising capital. We raised almost Rs 3,800 crore of capital between QIP, some stake sale and convertible bonds. We also continue to use the profitability that we derive through the year to create large provisions as the business pans out. We have provided about 3.7% to the loan book, which adds up to almost three times of what is required under regulatory provisions.
The provisioning level is very comfortable. The asset quality has actually stood up fairly well through the course of the last four quarters, and between the first and the fourth quarter the net NPAs has actually declined marginally. On your point of net interest income, again through the last four quarters we have tried to make sure that our margins stay stable even as we are migrating, letting go of our wholesale assets, ramping up on our retail disbursals. So, spreads have remained fairly stable at about 2.7%. There was a one-off refund around interest on interest as directed by the honourable Supreme Court which had a small impact on quarter four net interest income because of the refund that we had to do and that has resulted in the marginal decrease in quarter-on-quarter net interest income.
Aside from that, through the four quarters we have been able to build a very stable earning profile. Even more importantly, we have been able to significantly strengthen the balance sheet from a capital, gearing as well as provisioning perspective. Now we feel that with all of our partnerships having come in play, everything else which is required from an asset light model, the low- cost tech-led distribution that is also more or less done. We have created a fairly good base through fiscal 21 to ramp up disbursals through fiscal 22, and by the end of fiscal 22 actually hit a run rate of about Rs 2,000 crore a month.
Q4 GNPAs have risen slightly compared to last quarter, but given the impact of the second wave, what is the outlook on the NPA trends that you foresee and the collection efficiency in segments in which you are present?
Through the course of the last 12 months or even the last 30 months, the company chose to adopt a strategy where in times of uncertainty around both the NBFC sector as well as around the macroeconomic scenario over the last 14 months. This was chosen to actually lower our gearing to grow the book. So from a peak of Rs 1.3 lakh crore, we are down to actually Rs 66,000 crore and that is the gearing has reduced. As that has happened, the vintage of the book has gone up – as we have detailed in our release also – to almost four years.
It is a very seasoned book and because it is an EMI-based book the principle has been running down. The equity of our borrowers has been increasing, the loan to values have been reducing, and therefore our borrowers are hugely incentivised to keep their loans regular. This is reflecting in the collection efficiency in March; it had gone up to 98.5%. Even through April, when most of the states had gone into lockdown, it had only declined to a little over 98%; around the 30 to 40 bps decline.
So COVID 2.0 is something that from a balance sheet perspective we were already pre-prepared for by creating large provisions by increasing our capital adequacy to 31%. And willy-nilly, because of the strategy that the company has followed, we are sitting on one of the most seasoned books in our peer set and that should help us wade through this crisis. The good news is that already the positivity rates in most states are declining to below 5% levels, which means that hopefully we have achieved the peak. Most probably by June one is optimistic that things should start opening up.
With that sense, we believe that on a provision basis we are quite well protected from even COVID 2.0. Even on the gross NPA inch up from 2.44 to 2.66, I would request you to keep in perspective that this has actually been degrowing the book. So, as we have detailed, if we had not degrown the book the gross NPA would have actually will only about 2.31%. All in all, it is a very stable asset quality that we have been able to preserve through this period of the COVID crisis.
Retail and wholesale were seeing robust demand and accelerated sales; What is the outlook now? Were you going a little bit slower on the retail, wholesale book?
We have actually already gone very slow which is why we have degrown. We have adopted a strategy of great care through the period of COVID, we have not tried to ramp up aggressively. So, the strategy in front of us is very clear. We will continue to let go up our wholesale assets and we will continue to ramp up our retail disbursals by our partnerships; our co-lending partnerships with several large banks and HDFC. I am quite hopeful that with these partnerships and the capital that we have of our own we should be able to ramp up our retail disbursals to Rs 2,000 crore.
To put Rs 2,000 crore a month in perspective, back in 2018 we used to do about Rs 2,500 crore. So, three years have gone by, the market has expanded, but we are just going to be going back to that number in a significantly lower cost model. There is no sharp ramp up or anything that the company is planning to do. Even fiscal 2022 would be a year of careful scale up. The strategy for the scale up is very clear. The base which is required for the scale up is in place and that gives me confidence that we should be able to achieve these numbers.
What are the key consumer trends that are observed in the retail book and loan against property due to the second wave?
The consumer trend through quarter four was very encouraging, as has been widely reported in the media. Sales for real estate projects were at lifetime highs, so were collections, which means that the consumer is out there willing to buy a house, willing to make that commitment. The last one and a half-two months have had more logistical challenges, like how do you step out. You are trying to preserve your health and sanity, and the same for people around you.
But as things open up in June and as these positivity rates drop down, I am quite sure the trend which had started in September 2020 and had continued up until March 2021 would recommence; our structural shift, where the cycle for residential real estate had shifted. I am quite confident that with most of the macroeconomic conditions remaining the same — which is low interest rate, abundant liquidity, etc. — there should be robustness that one will witness in quarter two sales of homes. So, that is the big consumer trend and everything else around our book basically structures itself around the big consumer trend.
Last time you spoke to ET Now, you mentioned capital raising of about $200 to $300 million. Can we expect capital raising and what can be the quantum in the coming quarters?
Yes, so last year, as I said earlier, we very successfully raised over $500 million of capital and this year again we will have to look at what is the appropriate structure. Now that the annual results are behind us, we will engage with our institutional shareholders, other shareholders, and the stakeholders to see. I would imagine that this would be the second half of the fiscal year event, but that again we will have to calibrate given overall market conditions and what is the feedback of our various stakeholders.
What is the update on the AIF approval and the capital infusion by the partner in AIF?
AIF does not require any approval. We already have a fairly large AIF with assets under management of around Rs 5,000 crore. We are in advanced discussions with two partners to come in, much like we had concluded our onward lending partnerships for our retail book. On similar lines, we will conclude it for our sale assets. As and when that gets done, which is expected shortly, one will certainly update the market.
