As pleasant news for cash-strapped developers, the Reserve Bank of India (RBI) has now made it smoother for banks to lend to affordable housing projects by easing financial norms and tweaking the definition.
Sachin Khandelwal, CEO, Magma Housing Finance is confident of 80 percent of their company's loans to now qualify under the non-metro category.
The housing company is focused being a tough competitor on the upcountry business targeting the semi-urban and rural markets, says Khandelwal in an interview with CNBC-TV18's Nigel D'Souza and Reema Tendulkar.
Below is the verbatim transcript of the interview:
Q: As a portion of your total revenue or your total loan book what's the contribution of affordable housing according to the new classification?
A: It is only a year-old company and we have acquired a portion of the entire GE Money housing finance. At this point of time, the book is pretty small. However, what we are booking and what our intention is, almost 80 percent of our loans will easily qualify within this category. So, while we are not largely focused on the metros, we are more on the non-metro side but even there we would have most of our business coming in within this definition of Rs 40-50 lakh.
Q: What is the total percentage?
A: For these two definitions, we will be almost 80 percent plus within the norms of home loans part.
Q: I presume that you will be getting some competition coming in from banks because it's liking to be favouring them, how do you plan on tacking the competition with regards to housing loans.
A: We are not very metro focused, most of our business comes from non-metros so on the metros side we would not and we are looking at more slightly different segment of customers. We look at informal customers; we look at self-employed more while banks are still focused on salaried and formal customers.
In addition, we are already focusing much on the upcountry business. Lot of our distribution is mainly in semi-urban and rural markets. So, while in the metros the competition will get bigger for whoever is strong player in the metros, which we are not. In the smaller markets that we are, we would definitely face some competition but we are geared up and largely focused on outside.
Q: Do you foresee scenario where you will have to cut-rates to ward-off this competition and therefore impacting your margins?
A: Frankly for housing loans, it is not so much of cutting rates but for salaried, there is a competition that 10.25 versus 10.50 or whatever. We lend at slightly higher rates for both home loan and home equity. If the rates are brought down systemically across by everybody based on cost of funds or even otherwise then yes, but nothing more than 25-50 bps maximum impact that I see because on the rate front there is no forecast of any rates going down drastically.
Q: Could you break-up that for us with regard to your borrowings. How much of it comes from banks and do you expect your cost of borrowing to go lower?
A: If the banks' lending rates go down, a very large part of our borrowing as of now and being an NBFC finance company is largely coming from banks. So, if bank rates go down, we will definitely benefit to that extent of 25-50 bps.
Q: Last year, your asset quality worsened quite a bit so if I look at it FY14, the gross NPA went up to 3.6 percent versus 1.6 percent and even the net NPA went up from 1.3 percent to 2.9 percent. So it was a pretty sharp deterioration that you saw in your asset quality, what can you guide us for FY15, what would the gross NPA as well as the net NPA look like?
A: Housing side of course the portfolio is low and there is no such thing. On the asset side there has been a stress, which is something that almost all the non-banking financial companies (NBFCs) have faced. So relative to others, we have not performed badly. We have also realigned our collection strategy and even the provisioning now, we have a more aggressive provisioning norms because of which our numbers are higher. So we do provisioning aggressively than others which is in the new expected RBI regulation because of which the numbers are high. We expect the collection scenario to remain stable this year. We should see a lot of recoveries and improvement which we have seen in Q4 of last fiscal itself and Q1 itself continues to consolidate for us. We should see similar numbers, not anything worsening than this for sure, there could be improvement.
Q: Overall you are expecting it to be stable then, no improvement in the gross NPA or net NPA figures?
A: For some products, will see an improvement. Yes, on the commercial vehicles and construction equipment side, it is still not stabilised and the mining and the infrastructure sector where the equipments were employed and vehicles are employed that is still not looking very stable, the new commercial vehicle sales is not growing hence there is a little element of caution there.
Q: Any impact on your tractor loans because of the deficient monsoon in the month of June?
A: Too early to say that because tractor has two peak seasons; one is May, which has already gone by, the smaller peak season; the main peak season comes in quarter three, which is October-November. July is never a big month. So far, it looks good. However, talking about the manufacturers, so far it is flat but if monsoon worsens, we could see little slowdown. So, I guess August will be a good indicator of tractor sales.
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