Indiabulls Housing Finance (IBH) is looking at growing its assets under management (AUM), or loan book, as well as profits by 20 per cent, unaffected by the Reserve Bank of India's disapproval of the proposed merger with Lakshmi Vilas Bank (LVB).
"Over the medium term, we will continue to do even more granular loans than earlier. About two-thirds of those will be done either in securitisation or co-origination format. We are looking at 20 per cent AUM growth and hence 20 per cent net interest income growth and a similar profit growth," Gagan Banga, vice chairman and managing director of IBH, told Business Today.
The company had posted a decline of 10 per cent in the loan book to Rs 1.13 lakh crore in the June quarter of 2019/20 while profit was down 24 per cent to Rs 802 crore during the same period.
Banga said the company's balance sheet, however, will witness significantly lower growth in the medium term. "If the AUM is growing by 20 per cent, the balance sheet will grow only by 6 to 7 per cent and return on equity (RoE) can increase from 25 to 30 per cent. This is because the capital deployed in business does not need to go up as large part of these assets will not be on the balance sheet but give income over a period of time," he added.
The company has brought down its commercial paper (CP) borrowing from Rs 15,000 crore about a year back to Rs 500 crore now, Banga pointed out.
RBI on Wednesday rejected the merger proposal between LVB and IndiaBulls. Had it been approved, it would have been the first ever merger of a shadow banking entity with a bank in the country.
"Multiple attacks have come our way over the last six months due to the merger, resulting in perception disturbance. So we have to work with lender and stakeholders to make sure that the perception goes back to appreciating that between 2008 and 2018, we had created from scratch the second largest housing finance company in India. It will take four-five months to get back the perception and since our facts are strong, it will happen quickly," Banga said.
The merger, first proposed about six months ago, would have worked for Indiabulls as it would have given the shadow lender access to deposits and helped achieve scale. "Once we had crossed Rs 1 lakh crore in size, we were uncomfortable with not having access to deposits. At the same time, operating as the second largest player in an environment where securitisation was a small market was not easy," Banga said.
However, over the last six months, securitisation market has deepened in India. "Since in India, the securitisation market was then small, we thought having access to granular deposits was very valuable. We have been able to securitise a large quantum over the last 12 months with 23 banks. The government has institutionalised this process," he said.
The company has securitised Rs 25,000 crore over the last one year. "This is more than the securitisation the company had done cumulatively over the last three years," he pointed out.
Banga said if the merger had gone through, a lot of investment would have been required in creating an elaborate branch network. LVB is a small bank with deposits of about Rs 30,000 crore. "Our size was roughly Rs 1 lakh crore and for getting additional deposits worth Rs 70,000 crore, we would have had to invest heavily in branches," he added.
Indiabulls scrip fell 18.85 per cent to close at Rs 195 on Thursday after the central bank turned down merger proposal.