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The company is miles ahead in compliance, not only in ALM but also on capital and liquidity coverage ratio, says the vice chairman of Indiabulls Housing Finance Gagan Banga , vice chairman and managing director of Indiabulls Housing Finance, says the recent move by banks to increase loan purchases from NBFCs will be beneficial to mid-sized and smaller firms. Excerpts from an interview:
Following the IL&FS crisis, do you think banks have become reluctant to lend to NBFCs?
There are various types of NBFCs, I can speak about specifically housing finance companies (HFCs), and within that, I can speak more specifically about us. So, the distinction between housing finance companies and NBFCs is that, when banks lend to HFCs, the risk weight to them is linked to credit rating [of the borrower]. For example, if a bank is lending to a general purpose NBFC even if it is AAA rated, then it is a 100% risk weight asset for the bank. But the risk weight for an AAA-rated [Indiabulls HFC is AAA rated] HFC is 20%. So, in today’s time when banks are extremely capital-constrained, it becomes extremely useful for banks … from a capital efficiency point of view to lend to a housing finance company vis-a-vis a general purpose NBFC. Now, coming specifically to Indiabulls Housing, over the course of this credit crisis that became a crisis in public on September 21 [when NBFC stocks were severely hit] …. between September 21 to date, across various instruments we have raised north of Rs. 6,000 crore. Banks are more comfortable in lending to an AAA-rated company. RBI has recently said it is looking to tighten norms relating to Asset Liability Management [ALM] of NBFCs. How are you placed?
Our last five years of ALM, till September 30, there is no mismatch in any bucket up to five years. Also, we are miles ahead so far as regulation is concerned, not only in terms of ALM but also on capital and on liquidity coverage ratio, even if that is not applicable to HFCs. So, if there is a regulatory change — personally I have always welcomed regulatory changes — I think in the long term it is beneficial. Given our capitalisation levels and credit rating, I think we should be able to sustain the ALM that we have been doing in the past. What additionally we are planning to do is to migrate to the same ALM guidelines that are applicable to banks in India, immediately.
How do you see SBI ’s decision to triple its loan purchase from NBFCs?
It is a welcome move, particularly for mid-sized NBFCs. For someone like us, securitisation is a normal course of business.
For example, in the last fiscal year, we have done Rs. 11,500 crore of portfolio sales to various banks, including the State Bank of India.
In first half of the current fiscal, we have sold Rs. 5,000 crore to various banks. So, we are a regular seller of portfolio in that sense. Our target for this year is to sell Rs. 13,000 crore, which I think [we] will exceed. [For] some of the other companies which are not in the market, it is a good option for them if SBI or other banks are looking to acquire.
What has been the impact of cost of funds on you in the last one month following the liquidity squeeze?
When we borrow from banks, their lending rates are linked to marginal cost of funds based lending rates, which has moved up by 5-20 bps [basis points], so that is the kind of increase that we have seen.
That much of transmission has happened as we have increased our home loan rates by 20 bps.
Do you think loan growth will be impacted due to the liquidity crisis?
Again, I cannot talk about others. We have re-emphasised on our guidance that we will continue to grow at 20%. For the last 10 years, our CAGR is around 20%.
We are quite confident that we should continue to grow at 20%.
Source : https://www.thehindu.com/todays-paper/tp-business/we-will-migrate-to-asset-liability-norms-meant-for-banks/article25222722.ece
