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Moderator
Ladies and gentlemen good morning and welcome to the Q3 FY11 post results conference call of LIC Housing Finance hosted
by Emkay Global Financial Services. We have with us today Mr. V.K. Sharma, CEO and Director of LIC Housing Finance. As a
remainder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the
end of today’s presentation. Should you need any assistance during this conference, please signal an operator by pressing *
and then 0 on your touch tone telephone. Please note that this conference is being recorded. I would now like to hand the
conference over to Mr. Anish Damania, Head of Equities, Emkay Global. Thank you and over to you sir.
Anish Damania
Hello every one, thank you for joining us today. We thank Mr. V.K. Sharma, CEO and Direction, LIC Housing Finance for
hosting this call and giving us an opportunity to host this call. I would now like to handover the call to Mr. Sharma. Over to you
sir.
V.K. Sharma
Good morning to everybody. This is my first earning call in which I am interacting with all of you. Welcome to LIC Housing
Finance.
To give a brief overview of the quarter as far as business operations are concerned, Q3 had been extremely good especially in
retail segment. For the quarter, the growth rates have been 28% both sanctions and disbursements and we are primarily due
to strong growth in the retail segment which grew at 90% and 41% respectively. The month of December was very crucial for
us. We continued our strong business growth with loan sanctions clocking 64% growth in retail segment in Month of
December. In recent days there have been a lot of concerns from various stake holders regarding the growth prospects and
the future course of the organization.
As assured earlier, we have been able to dispel such concerns by showing a strong growth of 64% in retail sanctions and 33%
in retail disbursements for the month of December which should be amongst the best in the industry. As far as NIM and
spreads are concerned, this quarter has witnessed tight liquidity which has resulted in higher interest cost in the system with
borrowing cost going up quite significantly, we have also witnessed rise in our average cost of funds to 8.12%. Across the
industry, retail lenders have increased their lending rates as well. We are being one of the last one’s to increase the rates and
have ensured that the increases are not very steep. At the same time to effective liability management and fund raising at
competitive rates, we have been able to maintain the spread at 2.09% and the NIMS at 3.14% as of the third quarter. We
believe that the full year spread and NIMS should also be well above our targeted level. We are continuously monitoring the
situation on the cost side and we will intervene where ever prudent keeping the best interest of all stake holders in mind.
Intervention could be in the nature of modification, withdrawal, repricing of current product, offering of the company or in the
way of introduction of new products. It may be mentioned here that on asset side more than 60% are in floating rates whereas
on the liability side, we have more than 55% liabilities fixed giving us an advantage in times of rising interest rates. As far as
assets quality is concerned, we have already come below the March 2010 figure. We continue to be the best in the industry
with gross NPAs at 0.67% as compared to 1.44% in the corresponding period of the last year and we are striving to reduce it
further in the last quarter of the year. The assets quality in the developer loan segment continues to be very good at 0.08%
gross NPA, developer loans are backed by security cover of over two times. There have been recent NHB guidelines requiring
higher provisioning for some category of the loans. We have sought some clarifications from our regulator pending NHB
clarification, the company has made a provision of 229.79 Crores on loans which was under the fixed cum floating rates. This
has resulted into operation profits for the quarter being lower by 234.92 Crores.
Thank you very much. Any questions, Mr. Damania can be coordinating.
Moderator
Ladies and gentleman, we will now begin with the question and answer session. At this time, if you would like to ask a
question, you may please enter * followed by 1 on your touch tone telephone. Participants are requested to use only handsets
while asking a question. Our first question comes from the line of Vikram Mahajan from Bay Capital, please go ahead.
Vikram Mahajan
As you mentioned that they have little impact due to excess provisioning under dual rate scheme, if you could just throw more
light on what is the government’s stance is.
V.K. Sharma
See we have one product, we call it as Advantage 5, where in first five years the interest rates are fixed and after that it is
floating. It is not what we call teaser loan scheme. So once this is taken out, the provisioning required will be very minimal.
Vikram Mahajan
Sir as you mentioned that you are not clear on whether the dual rate scheme requires this excess provisioning from here on,
so this is one time prudent provisioning that you have done and going forward you will see further clarification.
V.K. Sharma
Yeah that is right. We have done it to improve the confidence of our investors as well as the market and regulator.
Vikram Mahajan
Okay and can you just clarify more on your sale of shares from your LIC AMC to Nomura Asset Management?
V.K. Sharma
Yeah, we had originally 39.9% stake, 39.3% stake in LIC Mutual Fund, out of that we have sold 17.3% to Nomura. It has been
sold at a substantial premium obviously and we have got 136 Crores plus from them which we have put it as income from sale
of investments.
Vikram Mahajan
Sir, what was the rationale behind the sale and going forward.
V.K. Sharma
Because we get our LIC Mutual Fund has wanted to go for a strategic aligns with Nomura to increase their I will say business
and say technology all other things.
Vikram Mahajan
If you can just clarify on the synergy that you are looking forward to through this joint venture.
V.K. Sharma
This will help expanding the operations of LIC Mutual Funds and we have still 20% stake with them, so in future, we are
expecting that it will benefit us substantially.
Vikram Mahajan
Alright, thank you so much for the time sir.
Moderator
Our next question is from the line of Rohan Juneja from Front Point, please go ahead.
Rohan Juneja
As mentioned your press release, your sanctions and your developer portfolio were much lower this quarter but you all did
mention you all plan to resume it Q3, can you just throw some color on that and the second question is you mentioned on your
remarks that December was a very strong month for retail mortgages , however, you know it seems from you know the real
estate players that volumes have slowed down a good amount especially in the metro cities, sir can you tell us where you are
seeing this volume coming from.
V.K. Sharma
The first question is regarding that developer. For obvious reasons we had slowed down in the month of December, now we
have gone through the primary reason I will say that after taking over I wanted to have a relook myself and now after this
quarter result, we are making it I mean we are going normal, of course, because the concerns of the developers also is
required to be addressed. Primarily three category of cases are there, one where we have part disbursed the loan, another
where we have sanctioned and not disbursed but we are holding their papers and then all other cases. So this Q4, we will be
addressing all these issues and we will be going ahead. So, I beg you pardon what was the second question.
Rohan Juneja
The second question was you know you mention that December was a very strong month for your.
V.K. Sharma
See our strong area of business is I will say Chennai, Bangalore, Hyderabad and fast growth we are witnessing in our central
region what we call that UP and MP area. May be, I will not say that metro, metro has maintained it but the growth is coming
from down also, because need still exists.
Rohan Juneja
Okay, understood, thank you.
Moderator
Thank you. Our next question is from the line of Vikas Garg from Fidelity Mutual Fund, please go ahead.
Vikas Garg
I have a broad question for you that is that you have taken over the charge as the new CEO of the company, do you think
there would be any kind of a key changes that needs to be brought in the company either in the management or at the strategy
level or this will just be at the business side as usual going forward.
V.K. Sharma
See normally, any changes we do at end of the year. So at present, I do not foresee except minor adjustments if it is required,
that too for the purpose of looking Q4 as a very aggressive quarter. Otherwise, we do not foresee any changes because there
was not a major issue on the organization side.
Vikas Garg
Okay, so we do not see any changes in the top management on the one who was operating and managing the show on the
ground level nor we see any kind of a change on the strategy also going forward we will see some kind of a mix between retail
loans and the developer loans.
V.K. Sharma
Right because that we will try to keep it at the same level between 11 and 12% that will be same.
Vikas Garg
Okay, thank you very much.
Moderator
Thank you. Our next question is from the line of Amit Premchandani from UTI Mutual Fund, please go ahead.
Amit Premchandani
Just a question on margins or spread, I do not know whether it has been already addressed. Quarter-on-quarter margins have
gone up on a 20 basis points while the spreads are down 5 basis points and also incremental spreads are down around 40 to
50 basis points. Can you just explain how this variance in margins and spreads
V.K. Sharma
Yeah, Sudipto will reply it to you.
Sudipto Sil
Yeah, Amit, actually what you have observed is correct. The NIMs have gone up from 2.93 sequentially to 3.14 up by around
21 basis points but the spread in fact the way we calculate spreads is the average cost of fund on the reporting date that is
around December 31, so towards the end of the year, if there has been any increase in cost of funds, it will probably reflect the
higher cost of fund resulting in a lower spread whereas the NIM the way it is calculated, it is actually the interest earned over a
period of time in this case overall period of a quarter, so that is the reason why you are probably seeing this aberration.
Number two is that with respect to your incremental spreads which you have said has witnessed a drop actually if you would
have noted we have increased our rates on the existing book as well as on the new business for the new loans by around 50
basis points to 85 basis points on January 1, 2011, and those have not been accounted for at the time of calculating the
spreads on December 31, 2010, so even as we speak the spreads in January are probably closer to 2.
Amit Premchandani
Yeah thanks.
Moderator
Thank you. Our next question is from the line of Ramnath V from Birla SunLife. Please go ahead
Ramnath V.
Sir I just wanted to understand just one particular statistic, this is based on the project loans that you gave, how much of the
same projects are funded on the residential side by you sir.
V.K. Sharma
Do I understand that if I have given the project loan to a particular developer, how many retail loans we have sanctioned in the
same project?
Ramnath V.
Correct sir.
V.K. Sharma
It is very minimal. We have gone through that thing. In the same project, it is less than 5%. Because both are independent
activities and based on case to case basis.
Ramnath V.
Okay, sir I just wanted to understand this particular thing from your own side from the system perspective that when you are
giving loans on the project side when you are saying that builder is approved and you are willing to give him loans for the
extend retail loans to the project, how are these two things actually separate and how do you go about that particular thing sir.
V.K. Sharma
No, see this approval of builder has nothing to do with the project loan sanction.
Ramnath V.
Sure, and that is an entirely that particular thing when you advertise.
V.K. Sharma
Yeah, so approval of builder will be done looking into the title of the paper and all other details that retail part will see, then
they will say that yes in this project, if any body wants the retail loans, it can be given, why we do that approval is because it
becomes easier for the customer to prepare papers
Ramnath V.
Sir, I understood that. I just wanted to understand the cheques and balances in the system so that both these teams the
project team which is working on a separate project and the retail team which is working on basically seeing if all the legal
papers are put in place and still are in place and stuff like that, what are the cheques and balances to see that.
V.K. Sharma
Our total number of developer loan is I mean far and few as compared to the retails which we give to the apartments in
different approved projects. It is hardly 85 to 86 project loans we have given. So to that extent that is there. Besides that we
have a mechanism to know that whether the entire, I mean the loan is going in retail in the same project, that also we see it
and most of the builders because we have only part financed it, so others are the banks and others they are more aggressive.
Ramnath V.
Sure and one last question, one gentleman was asking in terms of the on an incremental basis you said that most of the
business is coming from Bangalore and Hyderabad and Madras and all these places, what is the ticket size in these loans now
sir.
V.K. Sharma
It is 15 to 16 Lakhs.
Ramnath V.
Okay, so the number of loans that you are giving as it increase, will that be a fair assessment.
V.K. Sharma
But number of loans has also increased substantially. You want the number; I will be able to give you.
Ramnath V.
Sure sir, if you can just help me with that.
V.K. Sharma
Number of 90 to 94,000. 94,710 loans we have sanctioned till date as against 71,126.
Ramnath V.
Okay sir but then if I look at the average size should have gone up slightly because of…
V.K. Sharma
Slightly yeah, marginally it has gone up, 15.5-16 lakhs it is. It is 15.46, last year it was 13.89, it has gone up to 15.46.
Ramnath V.
Yet only on the incremental not on the average.
V.K. Sharma
Incremental.
Ramnath V.
Okay fine sir. I think I will just do some calculation and I will get back if there are any requirements.
V.K. Sharma
Right.
Ramnath V.
Sir, I understood that. I just wanted to understand the cheques and balances in the system so that both these teams the
project team which is working on a separate project and the retail team which is working on basically seeing if all the legal
papers are put in place and still are in place and stuff like that, what are the cheques and balances to see that.
V.K. Sharma
Our total number of developer loan is I mean far and few as compared to the retails which we give to the apartments in
different approved projects. It is hardly 85 to 86 project loans we have given. So to that extent that is there. Besides that we
have a mechanism to know that whether the entire, I mean the loan is going in retail in the same project, that also we see it
and most of the builders because we have only part financed it, so others are the banks and others they are more aggressive.
Ramnath V.
Sure and one last question, one gentleman was asking in terms of the on an incremental basis you said that most of the
business is coming from Bangalore and Hyderabad and Madras and all these places, what is the ticket size in these loans now
sir.
V.K. Sharma
It is 15 to 16 Lakhs.
Ramnath V.
Okay, so the number of loans that you are giving as it increase, will that be a fair assessment.
V.K. Sharma
But number of loans has also increased substantially. You want the number; I will be able to give you.
Ramnath V.
Sure sir, if you can just help me with that.
V.K. Sharma
Number of 90 to 94,000. 94,710 loans we have sanctioned till date as against 71,126.
Ramnath V.
Okay sir but then if I look at the average size should have gone up slightly because of…
V.K. Sharma
Slightly yeah, marginally it has gone up, 15.5-16 lakhs it is. It is 15.46, last year it was 13.89, it has gone up to 15.46.
Ramnath V.
Yet only on the incremental not on the average.
V.K. Sharma
Incremental.
Ramnath V.
Okay fine sir. I think I will just do some calculation and I will get back if there are any requirements.
V.K. Sharma
Right.
Ramnath V.
Thank you sir, thank you so much.
Moderator
Thank you. Our next question is from the line of Nishid Shah from IDFC, please go ahead.
Nishid Shah
I just wanted to have some color on the direction of the company is taking in terms of fixed and the floating rates and
especially in relation to the incremental spreads as it appears from your announcement yesterday that incremental spreads will
come down to something like 1.65% and if you continue aggressively on our fixed loans which are fixed for almost five year
period in a rising interest rate scenario, how do you protect yourself one that last quarter you had a 50 bps rise in the floating
rate loans and then as of January 1, you have taken another 50 bps rise in the floating rate launch, would it be fair to say that
actually the floating rate borrows are actually compensating for some kind of loss that.
V.K. Sharma
No. We have explained even to regulator, even our fixed rate they are also profitable loan, otherwise we would not have said
that it is not a teaser loan.
Nishid Shah
Sir what I am trying to understand is how…
V.K. Sharma
How we are going to address it.
Nishid Shah
Yeah, if you can please explain that.
V.K. Sharma
See one very effective help will come from release of developers loans which were held up, that itself will give a good cushion
because our you must have noticed that our share has gone down, it was 11 point something, now it has gone down to 10,
roughly more than 1% it has gone down. See, it is released and this will help in maintaining because it is a substantial amount
in number term also.
Nishid Shah
And would it be fair to say that the rate interest rates on the developer loans or project loans is substantially higher than the
rate that you charge on the fixed or a floating rate.
V.K. Sharma
Certainly, 400 basis points more. So that will take care to some extent then again we have said that we will review it if like our
regulator says that no this five years advance is five but we say five year 6 and then floating they say that no no it is a teaser
loan, though we are I mean we are questioning it, because all way along it has been treated as a non teaser but if they say
then we will address it. I said earlier that if it is required then we will modify it or we will introduce new product.
Nishid Shah
How much of your retail loans today is fixed and how much of it is on a floating rate loans.
V.K. Sharma
It is 60% and 40%.
Nishid Shah
60% is fixed.
V.K. Sharma
60 is floating, 40 is fixed.
Nishid Shah
40% is of the incremental.
V.K. Sharma
Yeah of the total book.
Nishid Shah
Of the total book, and if you start the developer funding then how would the ratio split between floating, fixed and the
developer loans.
Sudipto Sil
Hi, as far as the developer loans are concerned all around floating rates so even on the current portfolio if we include the
developer loans then the floating fixed mix becomes 65 to 35 on the asset side, 60 and 40 of course is on the retail side
purely, now this is just assuming than the current developer portfolio is considered. Now as far as the liabilities are concerned,
55% of the liabilities are fixed and 45 around floating, so there is some sort of I would say protection of cushion in times of
increasing interest rate scenario since we have 65 to 35 on the asset side and on the liability side 55.
Nishid Shah
Okay but tell me on the spread like third quarter you had a very good spread, would it be fair to say that FY12 looking at the
way things are going around, you will be able to maintain or improve on the spreads in FY12?
V.K. Sharma
We would say that we will maintain. Definitely that is what we have been doing even in times of tight liquidity and increasing
interest rate scenarios, we have been able to maintain and protect the spreads and definitely that will be the objective in FY12
and going forward also.
Nishid Shah
Okay and how about the concern on this incremental aggressive growth, how are you ensuring the quality of the growth and
that none of these turns into bad loans.
V.K. Sharma
Our NPAs are only 0.67% and it has gone down.
Nishid Shah
Sir what are the checks and balances that you do if you can throw some light to ensure that your NPAs are going to be under
control.
Sudipto Sil
See actually not fully getting into the details but actually it has to do a lot with selection of the right credit prospects that is the
first line of defense, the second line of defense is the elaborate systems and processes that we have put in place over several
years and which we have proved that has been helping our credit quality and thirdly most importantly is a very efficient and
affective recovery mechanism. These are the three lines of defense which have ensured a very good credit quality which has
been reflected in the numbers also over the last six years and seventh year running.
Nishid Shah
Yeah I think, Sudipto could you throw some light on what is driving the substantial growth for you even compared to your peers
you know, I mean some of the housing finance the large companies, what is driving substantial growth for you.
Sudipto Sil
See actually again here also there is a combination of various things, one is the network that we have I would say most
important is the brand this is financial product so credibility trust on these things matter and it is a long term contract, it is not a
2 year or 3 year relationship with the customer itself, a long-term contract so these things matter very much, secondly is our
distribution capacities and thirdly is the product designing and product pricing and of course needless to say servicing.
Nishid Shah
Tier-1 capital adequacy has substantially come down in this quarter, I think if we have to correct it is 8.5% now, what brought it
down substantially, is it just the aggressive...
Sudipto Sil
Actually the capital adequacy numbers that we had given out they were just approximated numbers and we have yet to issue
the audited numbers. The third quarter profits are not been included here, so in the third quarter profits are included probably
higher.
Nishid Shah
But would you have any capital raising plan in the next 12 months.
Sudipto Sil
Next 12 months, we will address this issue in next fiscal only, depending upon our growth and requirement, we will address
this issue on next fiscal.
Nishid Shah
Okay, all the best and thank you very much.
Moderator
Thank you, our next question comes from the line of Hiren Dasani of Goldman Sacs please go ahead.
Hiren Dasani
Just couple of data points, what is the outstanding loan book in three year and five year product now.
Sudipto Sil
Three year product is slightly above 10,500, closer to 11,000, that is called the fixed or floating which we have discontinued
and the advantage five product is slightly less than 5000 Crores.
Hiren Dasani
Lets say about 4500 complete.
Sudipto Sil
Around 4800 to be closer.
Hiren Dasani
Okay and when you say the incremental spreads 1.65% are they for the quarter or for the 9 month.
Sudipto Sil
No actually it is the spread is on a year end date that is what we have been clarifying in the earlier part of the call that it is
spread as calculated on that particular date that is on the reporting date of December 31.
Hiren Dasani
Just to understand on that date what is the lending rate and what is the incremental yield and incremental cost.
Sudipto Sil
That is correct.
Hiren Dasani
It is not average for the 9 months, what is the incremental.
Sudipto Sil
Absolutely not.
Hiren Dasani
Okay, you said that this product can be modified or you know it introduced the new projects, sir are you basically saying that if
it is classified as teaser loan then essentially what we have to do is that we have to make incremental 2% provision, right,
incrementally also for this kind of product, so in that case it may have to be modified, and any clarification on whether we have
to maintain this 25 basis point standard asset provision as well.
Sudipto Sil
No as of now we have not got any clarification in fact that was Reserve Banks guideline for NBFCs for all categories of assets,
they have not mentioned anything specific for housing loans, so as of now, we do not think it is applicable for housing finance
company which is regulated by NHB.
Hiren Dasani
Sir, would it be fair to assume that as in the past NHB will probably follow RBI.
Sudipto Sil
No, not necessarily Hiren because…
V.K. Sharma
There had been suite the guidelines immediately. Actually that is not correct because there had been instances where
Reserve Bank has introduced guidelines for higher capital adequacy ratio for NBFC but they have not been followed by NHB,
so there have been instances where it has not been followed in total by NHB but having said that we will await that is the
reason no clarification of further guidelines.
Hiren Dasani
Do we keep any standard asset provision other than this 2% for the…..
Sudipto Sil
10 basis points on retail standard assets and 90 basis points on the nonretail segment.
Hiren Dasani
That we do it as an appropriation of the profits right? It is not part of the P&L.
Sudipto Sil
No, it is through the P&L only.
Hiren Dasani
Okay, great, thank you.
Moderator
Thank you. Our next question comes from the line of Vivek Verma from Edelweiss, please go ahead.
Kunal
This is Kunal. Yeah, just taking forward that question on standard asset provisioning of the 10 bps on retail and 90 bps on
commercial, since we have mentioned that we have utilized almost 90 to 100 crores to make the provisioning towards 2%, so
is it that now this standard asset provisioning has been utilized towards our 2% requirement on these special loans.
V.K. Sharma
Yes.
Kunal
Yeah, so as of now, I do not think that we would be carrying anything say 10 bps on retail standard or 90 bps in this quarter we
have utilized that.
V.K. Sharma
Yeah 10 bps on standard assets.
Kunal
Okay, so we have utilized that entire thing. Okay and the other question is would it be safe to assume that if I am running at
the incremental spreads of 1.65% and with say most of the loans being under Advantage 5 in Q3 and I am also providing say
2% on that, so at the ROA level does that seem to be incurring much lower or say at the negative ROA on this particular
scheme if I include this 2% kind of provisioning.
Sudipto Sil
No actually you have to look at it separately Kunal, because if you are looking at the incremental spreads only on the new
business on advantage side, we have increased the rates between 50 to 85 basis points with effect from January 1, 2011, so
whatever spreads we were generating on that business has gone up by 50 to 85 basis points.
Kunal
Yeah, so now what would be the rates like on an average, what we will be doing on Advantage 5?
Sudipto Sil
It will be closer to 10.
Kunal
It would be closer to 10 and our incremental as we can see over here the incremental cost of funds they say 8.3, the way we
ended in December, okay, so on that it was approximately say 1.7% kind of spread which we were making, okay, and over
and above that we are making 2% kind of provisioning.
Sudipto Sil
So that provisioning was as of December 31, what our chief just mentioned is that we are awaiting further clarity from the
regulators and once that clarity comes in either which way then we will take a view.
Kunal
Okay, so apart from this suppose if this on the standard asset side if nothing comes up and say it is accepted that the teasers
loans are still not say our Advantage 5 is not a teaser loan or something then what is our view with respect to Advantage 5
considering the rates moving up and most of the guys have also withdrawn from the market their special schemes, so what
would be our outlook, would be we be continuing with this Advantage 5 then.
Sudipto Sil
That also has to be kept the overall market demand, customer requirement, cost of fund, these things have to be kept in mind
but we will not jump on it as of now, we will wait for the clarity to emerge and then we will take an appropriate stand.
Kunal
Okay, thank you.
Moderator
Thank you. Our next question is from the line of Venkatesh Sanjeevi from ICICI Prudential, please go ahead.
Venkatesh Sanjeevi
Just a basic question on the trends you are seeing now with the higher rates of interest right now. Are you seeing any increase
in repayments and prepayment by any chance?
V.K. Sharma
No, last year it was 8.3%, before that FY09 and it was 7.7%, it is still for 9 months we have seen it is 7.5% only.
Venkatesh Sanjeevi
Just 7.5% sir.
V.K. Sharma
Yeah prepayment. So prepayment say it is not that substantial prepayment has come or it is coming.
Venkatesh Sanjeevi
Okay fine right, thanks.
Moderator
Thank you. The next question is from the line of Ajitesh Nair of UBS, please go ahead.
Ajitesh Nair
Sir just a couple of questions, one is how much do you think you can hike PLR further before it starts impacting demand or
may be repayments.
V.K. Sharma
1% margin we already have because if you see the market, there are companies who have already kept 15%.
Ajitesh Nair
Right and sir how much is…..
V.K. Sharma
Or anything any technical you want to understand then Sudipto will tell you.
Sudipto Sil
Ajit if you just go back to say end 2008-2009 scenario, the interest rates in the system was in the region of around 11.5 to
12%, we are still quite away from that and in those days also, LIC Housing had delivered a disbursement growth of more than
25%, situation is definitely not a 2008 or 2009 kind of a scenario, so we believe that this is a user driven demand and to that
extent the interest rates do not hurt to that extent.
Ajitesh Nair
Okay, so you said we are still some time away before we hit the tolerance.
Sudipto Sil
Definite yes.
Ajitesh Nair
Okay, also sir just wanted to understand have we hiked the PLR in January or we have the changed rates on fixed Advantage
5.
V.K. Sharma
We have done both in from January 1.
Ajitesh Nair
How much are we PLR basis.
V.K. Sharma
PLR we have 50 basis points.
Ajitesh Nair
Okay and sir finally on how much is the outstanding approvals which are yet to be disbursed.
V.K. Sharma
2000 to 3000 Crores.
Ajitesh Nair
Okay got that, thank you sir.
Moderator
Thank you. The next question is from the line of Manish Shukla of Deutsche Bank, please go ahead.
Manish Shukla
You have said, PLR was high by about 50 basis points, so what will be a new floating rate loan rate for now.
V.K. Sharma
Yeah, it will start with 10.75%.
Manish Shukla
Okay and Advantage 5 is close to 10%.
V.K. Sharma
Right.
Manish Shukla
Okay, can you tell me the risk-weighted assets number at the end of quarter?
Sudipto Sil
See actually as I mentioned we are still in the process of giving out the capital adequacy numbers. We have just some
approximated numbers; we are working on it, in a couple of days that will be shared.
Manish Shukla
Okay fine, the rest questions are answered. Thank you.
Moderator
Thank you. Our next question is from the line of Nishit Dholakia from Birla SunLife Mutual Fund, please go ahead.
Nishit Dholakia
Yes sir, I just wanted to know what is the cummulative standard provision that we are now carrying in the book.
Sudipto Sil
It is around 464 Crores Nishit, this is Sudipto.
Nishit Dholakia
Okay thanks Sudipto.
Moderator
Thank you. Our next question is from the line of Megha Gupta from Birla SunLife, please go ahead.
Megha Gupta
My question was on LIC’s share holding now, do the extend guidelines and framework applied where as 33% remains the
minimum share holding that LIC would maintain at all points of time and 49% remains the maximum or are we in discussions
with LIC regarding any changes in the same.
V.K. Sharma
No that our managing director also just said they will make any change in that.
Megha Gupta
It remains within this band.
V.K. Sharma
That is right.
Megha Gupta
Any immediate near term discussions with LIC regarding increase in the stake from the current level.
V.K. Sharma
Not required. At this stage we are not taking any view on this.
Megha Gupta
Alright. Thank you so much.
Moderator
Thank you. Our next question is from the line of Neha Agarwal from Goldman Sachs. Please go ahead.
Neha Agarwal:
Just wanted to understand what’s the average duration on our liability side?
Sudipto Sil
It is a five-year.
Neha Agarwal
So sir, at what point in time, would our cost of funds on an average basis increase given, what's happening to the incremental
cost of borrowing?
Sudipto Sil
Neha this is Sudipto. Actually if you look at it, we keep on borrowing throughout the year. At every point in time if there is an
increase in the borrowing cost, there will obviously be some kind of increase in the average cost.
Neha Agarwal
What I am trying to understand is, would there be a point where the average cost of fund would reprise at a faster rate, given
what’s happening on an incremental basis. So if I understand, you are currently lending at about 10% on an incremental basis
and borrowing at about 9.25 % and when is it that it starts to hurt on average basis, given what is happening to incremental
cost?
Sudipto Sil
I will answer that question also, because if you look at the incremental borrowings for a year, it is roughly say around 15 to
20%, on a net basis to the balance sheet. So there will always be a little bit of trickling efforts, there will not be any major kind
of spikes in the borrowing cost. The rate at which the cost of fund is increasing in the system, we believe that whatever
increase in cost of fund happens that will continue to happen on a gradual basis. In fact if you have seen over the last quarter
it has gone up from 7.91 to 8.12, the average cost of fund between September 30th and December 31st. Within that period of
time the rates in the wholesale market had gone up by more than 100 basis points.
Neha Agarwal
And any sense on the competitive scenario with State Bank of India still sticking 8.5% in year 1. Are we seeing concern on
growth given that?
Sudipto Sil
Yeah, we have grown at for the quarter our retail sanctions have grown by 90%. For the month of December, which is just last
month, our retail sanctions have grown by 60%, definitely those will be best in the market figure, so that itself answers your
question.
V.K. Sharma
We are not going to compete with the State Bank of India. They have a different....
Neha Agarwal
Is it a different segment sir.
V.K. Sharma
Yeah, not only segment, they have a different way of business.
Neha Agarwal
Because I would think if I was trying to buy a house, I would be very price sensitive in terms of the rate that I am getting.
V.K. Sharma
No, I mean, now that market has changed in India, even in housing. Housing is also becoming like a consumer market, so
people are not only price-sensitive, people place sensitive also. Servicing, relationship all these factors take into account,
otherwise we would not have been able to show the growth, used advertisements and other thing. Ultimately what happens
that where the customer ends up, that they have word to mouth.
Neha Agarwal
Sir, what growth are you looking for in FY12?
V.K. Sharma:
30% we are targeting, that we have done from the beginning, before also very tried to keep it on this number.
Neha Agarwal
Thank you sir.
Moderator
Thank you. Our next question comes from the line of Shrey Loonker from Reliance Mutual Fund. Please go ahead.
Shrey Loonker
Sir, just wanted to get a sense, one is, if on the incremental basis, what percentage of your incremental disbursement of
individuals are coming into Advantage 5 and normal floating, if you could give that mix?
V.K. Sharma
It is 70, 30, I think.
Shrey Loonker
Sir, 70% is coming in Advantage 5. And what could be a top three geographies in terms of historically that are your strong
footholds?
V.K. Sharma
See, in volume I will say that volume and growth both, support is coming from the south, that is, Chennai, Bangalore segment,
and very fast-growing area is a central region that is Lucknow and Bhopal.
Shrey Loonker
Right, on an outstanding basis, what will be your large top three geographies, sir?
V.K. Sharma
Outstanding basis top three geographies will be, I will say Bangalore, Chennai, Hyderabad and Mumbai, these are the four
major….
Shrey Loonker
Okay. Thank you.
Moderator
Thank you. Our next question comes from the line of Amit Ganatra of Religare AMC. Please go ahead.
Amit Ganatra
Sir, what’s the total size of the balance sheet and the total borrowing number?
Sudipto Sil
Total borrowing is roughly 42,075 crores, and the total loan assets are 46,380 crores. Total assets will be closer to around
47,000 crores. We do not have any other major assets apart from liquid investments and cash.
Amit Ganatra
And also looking from a longer-term perspective, if I look at, mix between your retail and corporate bodies or this project
finance in FY07 it was 3%. It's basically kept on going up and now it is 11% or maybe previous quarter it was 11, now it was
10.5. So, last so many years if you look at the rates, it has not gone up significantly. So it seems that, obviously that is a highyielding
product. So, this is the segment basically which is compensating in that sense or enabling you to maintain the spirit.
So incrementally next, if I take a longer-term view, will this keep on going up, developer portfolio as a percentage of total
portfolio?
V.K. Sharma
We will keep it between 11-12%, that is what we're keeping focus at present.
Amit Ganatra
Because two years ago I remember clearly, the company was talking about keeping it between 7 to 8% or then basically the
bar went up, and then it was 10%. Now once again it has gone up…
V.K. Sharma
See typically what happens, that it depends upon the market demand. Market now particularly in the city market is driven
towards this apartments and builders related retail segments. So thing was happening, that particular builder gets tied up with
one of the company. So that has created a segment, wherein we have also to come.
Amit Ganatra
Agreed, but anyways see, it does not help in terms of your retail disbursements, as you mentioned in one of the earlier
questions that only 5% of the… I mean, any project that you are financing, you don't basically yet do 100% of the retail
lending….
V.K. Sharma
But we have to keep our presence that is the primary thing.
Amit Ganatra
But from an incremental basis just to understand that now you are talking about 12% but is it possible the next year basically
you raise it to say around 15% or so?
V.K. Sharma
No, no. I'm not sure about it, that we will be going that high.
Amit Ganatra
What if the liquidity situation remains tight and spreads basically contract….
V.K. Sharma
That is one area. Again what is happening in this real estate sector, is itself is a concern. Looking to that 11%-12% it is very
prudent.
Amit Ganatra
So you are saying that at any point of time, it will not go beyond 12%.
V.K. Sharma
And our retail growth is also equally fast. In retail if we are going by 30%, even maintaining 11% you will have to go there also
by 30%.
Amit Ganatra
Right. No, retail growth anyways is very much evident, but that portfolio basically helps you to manage the overall spread in
the portfolio and the overall ROAs for the company.
V.K. Sharma
Yeah. That you are right
Amit Ganatra
From that perspective, that portfolio is important for you. What I'm trying to understand is that, at any point of time, so basically
you are saying that it should not exceed more than 12%.
V.K. Sharma
No, no. It is not like that, the view will be taken depending upon the economic situation. Then again the need because builder
has to come forward for the loans. So it can go down, it can go up and what I'm trying to tell that, we will not go very
aggressive on that side, just to increase the margin, though our strength is retail only.
Amit Ganatra
Okay, thanks.
Moderator
Thank you. The next question is from the line of Ashish Sharma from Enam Asset Management. Please go ahead.
Ashish Sharma
Just want to get the sense on these two extraordinariness. Can you just tell me, this income from sale of mutual funds stake,
what will be the tax adjusted number for that, 136 is, I think before tax, what will be the tax adjusted number?
V.K. Sharma
It is a long-term capital gain, so it will be tax at the rate of applicable for long-term capital gains.
Ashish Sharma
Okay. So if I have to adjust extraordinary, so should we strip off 136 crores from the P&L end or should we do on a tax
adjusted basis?
Sudipto Sil
Actually, if you want to look at only the incomes then obviously the 136 is the net, but tax adjusted it will be lesser obviously
because long-term capital gain, so we have been holding the assets for fairly long period of time, tax outgo is likely to be much
less. We have been holding it since the late 90s or early 90s.
Ashish Sharma
Okay sir. And just another question on the provisioning expense we have taken on the P&L, what I understand from the notes
to account, is it that 235 crores was the total provisioning, as for the new norms 2% standard asset provisioning. We had taken
99 crores from the reserve we had, so the total provisioning was 320 crores.
V.K. Sharma
Yeah, that is right.
Ashish Sharma
Okay and how much was for Advantage 5, sir?
V.K. Sharma
Roughly one third will be there.
Ashish Sharma
As you were discussing the call, we're not sure that this will be classified as teaser loan or not. And if RBI has said that this
is…
V.K. Sharma
No, from my side I am sure that it is not teaser loan. The regulator has to take a comfort on that.
Ashish Sharma
Just want to get a sense; in case it is not classified, we can see a sort of right back also from this one to the P&L.
V.K. Sharma
Yeah.
Ashish Sharma
Okay. Thanks. That is all, sir. All the best for next quarter, sir.
Moderator
Thank you. The next question is from the line of Vikesh Gandhi from DSP Merrill Lynch. Please go ahead.
Vikesh Gandhi
Just one small quick question, as you mentioned that Chennai, Bangalore, Hyderabad, Bombay would be the largest market in
terms of your book. I just want to understand, all these four cities that you mentioned would have immense competition out
there, so how is that it's not getting supposedly reflected, when you say that there is no competition, I mean, just does not
connect, because these four cities are where most of the activities is happening in terms of real estate market. I'm sure
whether it is a NBFC or a bank, everybody would be jumping in.
V.K. Sharma
Yeah, there is competition in these four cities also, but maybe our presence is established and we have a very strong
distribution network. And then there is a kind of relationship chain, so that works. I would like to just quote one example, after
joining I had gone to one of the branches there in Chennai, when this came, just like that, ordinary person “a father comes with
son and daughter-in-law, get loan from LICHF. I asked them,” why you have come here”? No, no I have taken loan earlier, so I
am coming here only.” No issue of this, I asked him about interest-rate also and then bank also, because the next door the
bank is there. “No, no I have taken the loan here only, and I am comfortable”. So this is the approach of old customer, we have
been operating from fairly longtime and that lineage of typical LIC I will say, that works in our favor.
Vikesh Gandhi
Another small thing is that, just want to understand what could be your, almost a month has passed post December, and I
think your incremental cost was 8.3, would it be fair to assume, it is similar even now, or 20-25 days later or it would have gone
up by…..
V.K. Sharma
Borrowing cost, you are saying. It is fairly same, in the month after November; we borrowed around 9.20%, 9.30%, 9.38% like
that. So more or less, till date we are on the same, even resetting also we are doing it less than that 9%- 9.25%.
Vikesh Gandhi
And where most of the borrowings in the last quarter particularly would have come from which side, banks…..
V.K. Sharma
That is where, which has given to me a confidence as CEO. You will be surprised there are not less than 30 organizations and
it is not LIC, that is the best part. On all insurance companies, all banks, mutual funds all have participated in our NCDs.
Vikesh Gandhi
So what would be the mix in the last three months, in terms of borrowings, in terms of banks, bonds, short-term money?
Sudipto Sil
The short-term is obviously is much less, we do not do short term borrowings. Most of it has coming from the three year plus,
we have done a couple of bond placements, so I would leave that in the last two months, that is December-January,
predominant it has been issuance of bonds, and also to a fair extent term loan from banks.
Vikesh Gandhi
Okay, so it is a mix of just term loans and bonds.
V.K. Sharma
That is true.
Vikesh Gandhi
Okay, fine. Thank you.
Moderator
Thank you. Our next question comes from the line of Praful Kumar from Principles Mutual Funds. Please go ahead.
Praful Kumar
What is the average age of the liabilities borrowings today?
V.K. Sharma
Five years.
Praful Kumar
Can you give us an exact split in terms of bank loans and borrowing….how you stand?
Sudipto Sil
Predominantly, this is around 58% from the bonds, that is long term convertible debentures, around 25% is term loans from
banks, and we have got a subordinated debt in the upper Tier-2, which comprise another 7%, and refinance from NHV closer
to 4%, then existing old term loans from LIC at 2% and the rest will be miscellaneous including retail deposits.
Praful Kumar
Thank you sir and all the best.
Moderator
Thank you. Our next question is from the line of Mandhar Gadkari from India Advisory Partners. Please go ahead.
Mandhar Gadkari
Just two questions. One is, would you have a data along the incremental disbursements. How much is for a fresh loan, fresh
buying versus or kind of a resale?
V.K. Sharma
Fresh buying versus resale. It is 80-20.
Mandhar Gadkari
Second question was on this developer loan which in Q3 … you obviously slowed down Q4, you would again try to increase.
But looking at the real estate market per se where the volumes per se are drying and how do you decide to give which
developer because you need…..
V.K. Sharma
We have prioritized it. Like that ongoing projects here we have part-financed.
Mandhar Gadkari
But incrementally like a kind of scenario assuming there is a dry up in the volumes and there is no cash flow to the developer.
So how do ensure your quality of asset or the NPAs, how do you ensure, though you may have a security? How does it work?
V.K. Sharma
At present we have security more than 2.5 times. There we have cushion and whenever we are doing that disbursement prior
to that we go through the exercise once again. We ensure that the quality is maintained, and we also assess the track record
of the developer and financer because our number is limited. It is not like that we are giving 2000-3000 developers over the
country, selected 50-100 people are there.
Mandhar Gadkari
And I think, you said the spread is around 300 to 400 bps more than the retail.
V.K. Sharma
Yeah, that is true.
Mandhar Gadkari
And sir, geographical spread of these developers loan and would it be PAN India….
V.K. Sharma
Yeah. Primarily it is four cities. Mumbai is main, then Bangalore, Chennai and Delhi NCR. Other cities we have not done.
Mandhar Gadkari
Thank you very much.
Moderator
Thank you. Ladies and gentlemen that was the last question. I would now like to hand the floor over to Mr. Anish Damania of
Emkay Global, for closing comments.
Anish Damania
Thank you very much. On behalf of Emkay I would once again thank you all for joining the call. Have a great day.
Moderator
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference call. Thank you for joining us. And
you may know disconnect your lines. Thank you.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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Moderator
Ladies and gentlemen good morning and welcome to the Q3 FY11 post results conference call of LIC Housing Finance hosted
by Emkay Global Financial Services. We have with us today Mr. V.K. Sharma, CEO and Director of LIC Housing Finance. As a
remainder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the
end of today’s presentation. Should you need any assistance during this conference, please signal an operator by pressing *
and then 0 on your touch tone telephone. Please note that this conference is being recorded. I would now like to hand the
conference over to Mr. Anish Damania, Head of Equities, Emkay Global. Thank you and over to you sir.
Anish Damania
Hello every one, thank you for joining us today. We thank Mr. V.K. Sharma, CEO and Direction, LIC Housing Finance for
hosting this call and giving us an opportunity to host this call. I would now like to handover the call to Mr. Sharma. Over to you
sir.
V.K. Sharma
Good morning to everybody. This is my first earning call in which I am interacting with all of you. Welcome to LIC Housing
Finance.
To give a brief overview of the quarter as far as business operations are concerned, Q3 had been extremely good especially in
retail segment. For the quarter, the growth rates have been 28% both sanctions and disbursements and we are primarily due
to strong growth in the retail segment which grew at 90% and 41% respectively. The month of December was very crucial for
us. We continued our strong business growth with loan sanctions clocking 64% growth in retail segment in Month of
December. In recent days there have been a lot of concerns from various stake holders regarding the growth prospects and
the future course of the organization.
As assured earlier, we have been able to dispel such concerns by showing a strong growth of 64% in retail sanctions and 33%
in retail disbursements for the month of December which should be amongst the best in the industry. As far as NIM and
spreads are concerned, this quarter has witnessed tight liquidity which has resulted in higher interest cost in the system with
borrowing cost going up quite significantly, we have also witnessed rise in our average cost of funds to 8.12%. Across the
industry, retail lenders have increased their lending rates as well. We are being one of the last one’s to increase the rates and
have ensured that the increases are not very steep. At the same time to effective liability management and fund raising at
competitive rates, we have been able to maintain the spread at 2.09% and the NIMS at 3.14% as of the third quarter. We
believe that the full year spread and NIMS should also be well above our targeted level. We are continuously monitoring the
situation on the cost side and we will intervene where ever prudent keeping the best interest of all stake holders in mind.
Intervention could be in the nature of modification, withdrawal, repricing of current product, offering of the company or in the
way of introduction of new products. It may be mentioned here that on asset side more than 60% are in floating rates whereas
on the liability side, we have more than 55% liabilities fixed giving us an advantage in times of rising interest rates. As far as
assets quality is concerned, we have already come below the March 2010 figure. We continue to be the best in the industry
with gross NPAs at 0.67% as compared to 1.44% in the corresponding period of the last year and we are striving to reduce it
further in the last quarter of the year. The assets quality in the developer loan segment continues to be very good at 0.08%
gross NPA, developer loans are backed by security cover of over two times. There have been recent NHB guidelines requiring
higher provisioning for some category of the loans. We have sought some clarifications from our regulator pending NHB
clarification, the company has made a provision of 229.79 Crores on loans which was under the fixed cum floating rates. This
has resulted into operation profits for the quarter being lower by 234.92 Crores.
Thank you very much. Any questions, Mr. Damania can be coordinating.
Moderator
Ladies and gentleman, we will now begin with the question and answer session. At this time, if you would like to ask a
question, you may please enter * followed by 1 on your touch tone telephone. Participants are requested to use only handsets
while asking a question. Our first question comes from the line of Vikram Mahajan from Bay Capital, please go ahead.
Vikram Mahajan
As you mentioned that they have little impact due to excess provisioning under dual rate scheme, if you could just throw more
light on what is the government’s stance is.
V.K. Sharma
See we have one product, we call it as Advantage 5, where in first five years the interest rates are fixed and after that it is
floating. It is not what we call teaser loan scheme. So once this is taken out, the provisioning required will be very minimal.
Vikram Mahajan
Sir as you mentioned that you are not clear on whether the dual rate scheme requires this excess provisioning from here on,
so this is one time prudent provisioning that you have done and going forward you will see further clarification.
V.K. Sharma
Yeah that is right. We have done it to improve the confidence of our investors as well as the market and regulator.
Vikram Mahajan
Okay and can you just clarify more on your sale of shares from your LIC AMC to Nomura Asset Management?
V.K. Sharma
Yeah, we had originally 39.9% stake, 39.3% stake in LIC Mutual Fund, out of that we have sold 17.3% to Nomura. It has been
sold at a substantial premium obviously and we have got 136 Crores plus from them which we have put it as income from sale
of investments.
Vikram Mahajan
Sir, what was the rationale behind the sale and going forward.
V.K. Sharma
Because we get our LIC Mutual Fund has wanted to go for a strategic aligns with Nomura to increase their I will say business
and say technology all other things.
Vikram Mahajan
If you can just clarify on the synergy that you are looking forward to through this joint venture.
V.K. Sharma
This will help expanding the operations of LIC Mutual Funds and we have still 20% stake with them, so in future, we are
expecting that it will benefit us substantially.
Vikram Mahajan
Alright, thank you so much for the time sir.
Moderator
Our next question is from the line of Rohan Juneja from Front Point, please go ahead.
Rohan Juneja
As mentioned your press release, your sanctions and your developer portfolio were much lower this quarter but you all did
mention you all plan to resume it Q3, can you just throw some color on that and the second question is you mentioned on your
remarks that December was a very strong month for retail mortgages , however, you know it seems from you know the real
estate players that volumes have slowed down a good amount especially in the metro cities, sir can you tell us where you are
seeing this volume coming from.
V.K. Sharma
The first question is regarding that developer. For obvious reasons we had slowed down in the month of December, now we
have gone through the primary reason I will say that after taking over I wanted to have a relook myself and now after this
quarter result, we are making it I mean we are going normal, of course, because the concerns of the developers also is
required to be addressed. Primarily three category of cases are there, one where we have part disbursed the loan, another
where we have sanctioned and not disbursed but we are holding their papers and then all other cases. So this Q4, we will be
addressing all these issues and we will be going ahead. So, I beg you pardon what was the second question.
Rohan Juneja
The second question was you know you mention that December was a very strong month for your.
V.K. Sharma
See our strong area of business is I will say Chennai, Bangalore, Hyderabad and fast growth we are witnessing in our central
region what we call that UP and MP area. May be, I will not say that metro, metro has maintained it but the growth is coming
from down also, because need still exists.
Rohan Juneja
Okay, understood, thank you.
Moderator
Thank you. Our next question is from the line of Vikas Garg from Fidelity Mutual Fund, please go ahead.
Vikas Garg
I have a broad question for you that is that you have taken over the charge as the new CEO of the company, do you think
there would be any kind of a key changes that needs to be brought in the company either in the management or at the strategy
level or this will just be at the business side as usual going forward.
V.K. Sharma
See normally, any changes we do at end of the year. So at present, I do not foresee except minor adjustments if it is required,
that too for the purpose of looking Q4 as a very aggressive quarter. Otherwise, we do not foresee any changes because there
was not a major issue on the organization side.
Vikas Garg
Okay, so we do not see any changes in the top management on the one who was operating and managing the show on the
ground level nor we see any kind of a change on the strategy also going forward we will see some kind of a mix between retail
loans and the developer loans.
V.K. Sharma
Right because that we will try to keep it at the same level between 11 and 12% that will be same.
Vikas Garg
Okay, thank you very much.
Moderator
Thank you. Our next question is from the line of Amit Premchandani from UTI Mutual Fund, please go ahead.
Amit Premchandani
Just a question on margins or spread, I do not know whether it has been already addressed. Quarter-on-quarter margins have
gone up on a 20 basis points while the spreads are down 5 basis points and also incremental spreads are down around 40 to
50 basis points. Can you just explain how this variance in margins and spreads
V.K. Sharma
Yeah, Sudipto will reply it to you.
Sudipto Sil
Yeah, Amit, actually what you have observed is correct. The NIMs have gone up from 2.93 sequentially to 3.14 up by around
21 basis points but the spread in fact the way we calculate spreads is the average cost of fund on the reporting date that is
around December 31, so towards the end of the year, if there has been any increase in cost of funds, it will probably reflect the
higher cost of fund resulting in a lower spread whereas the NIM the way it is calculated, it is actually the interest earned over a
period of time in this case overall period of a quarter, so that is the reason why you are probably seeing this aberration.
Number two is that with respect to your incremental spreads which you have said has witnessed a drop actually if you would
have noted we have increased our rates on the existing book as well as on the new business for the new loans by around 50
basis points to 85 basis points on January 1, 2011, and those have not been accounted for at the time of calculating the
spreads on December 31, 2010, so even as we speak the spreads in January are probably closer to 2.
Amit Premchandani
Yeah thanks.
Moderator
Thank you. Our next question is from the line of Ramnath V from Birla SunLife. Please go ahead
Ramnath V.
Sir I just wanted to understand just one particular statistic, this is based on the project loans that you gave, how much of the
same projects are funded on the residential side by you sir.
V.K. Sharma
Do I understand that if I have given the project loan to a particular developer, how many retail loans we have sanctioned in the
same project?
Ramnath V.
Correct sir.
V.K. Sharma
It is very minimal. We have gone through that thing. In the same project, it is less than 5%. Because both are independent
activities and based on case to case basis.
Ramnath V.
Okay, sir I just wanted to understand this particular thing from your own side from the system perspective that when you are
giving loans on the project side when you are saying that builder is approved and you are willing to give him loans for the
extend retail loans to the project, how are these two things actually separate and how do you go about that particular thing sir.
V.K. Sharma
No, see this approval of builder has nothing to do with the project loan sanction.
Ramnath V.
Sure, and that is an entirely that particular thing when you advertise.
V.K. Sharma
Yeah, so approval of builder will be done looking into the title of the paper and all other details that retail part will see, then
they will say that yes in this project, if any body wants the retail loans, it can be given, why we do that approval is because it
becomes easier for the customer to prepare papers
Ramnath V.
Sir, I understood that. I just wanted to understand the cheques and balances in the system so that both these teams the
project team which is working on a separate project and the retail team which is working on basically seeing if all the legal
papers are put in place and still are in place and stuff like that, what are the cheques and balances to see that.
V.K. Sharma
Our total number of developer loan is I mean far and few as compared to the retails which we give to the apartments in
different approved projects. It is hardly 85 to 86 project loans we have given. So to that extent that is there. Besides that we
have a mechanism to know that whether the entire, I mean the loan is going in retail in the same project, that also we see it
and most of the builders because we have only part financed it, so others are the banks and others they are more aggressive.
Ramnath V.
Sure and one last question, one gentleman was asking in terms of the on an incremental basis you said that most of the
business is coming from Bangalore and Hyderabad and Madras and all these places, what is the ticket size in these loans now
sir.
V.K. Sharma
It is 15 to 16 Lakhs.
Ramnath V.
Okay, so the number of loans that you are giving as it increase, will that be a fair assessment.
V.K. Sharma
But number of loans has also increased substantially. You want the number; I will be able to give you.
Ramnath V.
Sure sir, if you can just help me with that.
V.K. Sharma
Number of 90 to 94,000. 94,710 loans we have sanctioned till date as against 71,126.
Ramnath V.
Okay sir but then if I look at the average size should have gone up slightly because of…
V.K. Sharma
Slightly yeah, marginally it has gone up, 15.5-16 lakhs it is. It is 15.46, last year it was 13.89, it has gone up to 15.46.
Ramnath V.
Yet only on the incremental not on the average.
V.K. Sharma
Incremental.
Ramnath V.
Okay fine sir. I think I will just do some calculation and I will get back if there are any requirements.
V.K. Sharma
Right.
Ramnath V.
Sir, I understood that. I just wanted to understand the cheques and balances in the system so that both these teams the
project team which is working on a separate project and the retail team which is working on basically seeing if all the legal
papers are put in place and still are in place and stuff like that, what are the cheques and balances to see that.
V.K. Sharma
Our total number of developer loan is I mean far and few as compared to the retails which we give to the apartments in
different approved projects. It is hardly 85 to 86 project loans we have given. So to that extent that is there. Besides that we
have a mechanism to know that whether the entire, I mean the loan is going in retail in the same project, that also we see it
and most of the builders because we have only part financed it, so others are the banks and others they are more aggressive.
Ramnath V.
Sure and one last question, one gentleman was asking in terms of the on an incremental basis you said that most of the
business is coming from Bangalore and Hyderabad and Madras and all these places, what is the ticket size in these loans now
sir.
V.K. Sharma
It is 15 to 16 Lakhs.
Ramnath V.
Okay, so the number of loans that you are giving as it increase, will that be a fair assessment.
V.K. Sharma
But number of loans has also increased substantially. You want the number; I will be able to give you.
Ramnath V.
Sure sir, if you can just help me with that.
V.K. Sharma
Number of 90 to 94,000. 94,710 loans we have sanctioned till date as against 71,126.
Ramnath V.
Okay sir but then if I look at the average size should have gone up slightly because of…
V.K. Sharma
Slightly yeah, marginally it has gone up, 15.5-16 lakhs it is. It is 15.46, last year it was 13.89, it has gone up to 15.46.
Ramnath V.
Yet only on the incremental not on the average.
V.K. Sharma
Incremental.
Ramnath V.
Okay fine sir. I think I will just do some calculation and I will get back if there are any requirements.
V.K. Sharma
Right.
Ramnath V.
Thank you sir, thank you so much.
Moderator
Thank you. Our next question is from the line of Nishid Shah from IDFC, please go ahead.
Nishid Shah
I just wanted to have some color on the direction of the company is taking in terms of fixed and the floating rates and
especially in relation to the incremental spreads as it appears from your announcement yesterday that incremental spreads will
come down to something like 1.65% and if you continue aggressively on our fixed loans which are fixed for almost five year
period in a rising interest rate scenario, how do you protect yourself one that last quarter you had a 50 bps rise in the floating
rate loans and then as of January 1, you have taken another 50 bps rise in the floating rate launch, would it be fair to say that
actually the floating rate borrows are actually compensating for some kind of loss that.
V.K. Sharma
No. We have explained even to regulator, even our fixed rate they are also profitable loan, otherwise we would not have said
that it is not a teaser loan.
Nishid Shah
Sir what I am trying to understand is how…
V.K. Sharma
How we are going to address it.
Nishid Shah
Yeah, if you can please explain that.
V.K. Sharma
See one very effective help will come from release of developers loans which were held up, that itself will give a good cushion
because our you must have noticed that our share has gone down, it was 11 point something, now it has gone down to 10,
roughly more than 1% it has gone down. See, it is released and this will help in maintaining because it is a substantial amount
in number term also.
Nishid Shah
And would it be fair to say that the rate interest rates on the developer loans or project loans is substantially higher than the
rate that you charge on the fixed or a floating rate.
V.K. Sharma
Certainly, 400 basis points more. So that will take care to some extent then again we have said that we will review it if like our
regulator says that no this five years advance is five but we say five year 6 and then floating they say that no no it is a teaser
loan, though we are I mean we are questioning it, because all way along it has been treated as a non teaser but if they say
then we will address it. I said earlier that if it is required then we will modify it or we will introduce new product.
Nishid Shah
How much of your retail loans today is fixed and how much of it is on a floating rate loans.
V.K. Sharma
It is 60% and 40%.
Nishid Shah
60% is fixed.
V.K. Sharma
60 is floating, 40 is fixed.
Nishid Shah
40% is of the incremental.
V.K. Sharma
Yeah of the total book.
Nishid Shah
Of the total book, and if you start the developer funding then how would the ratio split between floating, fixed and the
developer loans.
Sudipto Sil
Hi, as far as the developer loans are concerned all around floating rates so even on the current portfolio if we include the
developer loans then the floating fixed mix becomes 65 to 35 on the asset side, 60 and 40 of course is on the retail side
purely, now this is just assuming than the current developer portfolio is considered. Now as far as the liabilities are concerned,
55% of the liabilities are fixed and 45 around floating, so there is some sort of I would say protection of cushion in times of
increasing interest rate scenario since we have 65 to 35 on the asset side and on the liability side 55.
Nishid Shah
Okay but tell me on the spread like third quarter you had a very good spread, would it be fair to say that FY12 looking at the
way things are going around, you will be able to maintain or improve on the spreads in FY12?
V.K. Sharma
We would say that we will maintain. Definitely that is what we have been doing even in times of tight liquidity and increasing
interest rate scenarios, we have been able to maintain and protect the spreads and definitely that will be the objective in FY12
and going forward also.
Nishid Shah
Okay and how about the concern on this incremental aggressive growth, how are you ensuring the quality of the growth and
that none of these turns into bad loans.
V.K. Sharma
Our NPAs are only 0.67% and it has gone down.
Nishid Shah
Sir what are the checks and balances that you do if you can throw some light to ensure that your NPAs are going to be under
control.
Sudipto Sil
See actually not fully getting into the details but actually it has to do a lot with selection of the right credit prospects that is the
first line of defense, the second line of defense is the elaborate systems and processes that we have put in place over several
years and which we have proved that has been helping our credit quality and thirdly most importantly is a very efficient and
affective recovery mechanism. These are the three lines of defense which have ensured a very good credit quality which has
been reflected in the numbers also over the last six years and seventh year running.
Nishid Shah
Yeah I think, Sudipto could you throw some light on what is driving the substantial growth for you even compared to your peers
you know, I mean some of the housing finance the large companies, what is driving substantial growth for you.
Sudipto Sil
See actually again here also there is a combination of various things, one is the network that we have I would say most
important is the brand this is financial product so credibility trust on these things matter and it is a long term contract, it is not a
2 year or 3 year relationship with the customer itself, a long-term contract so these things matter very much, secondly is our
distribution capacities and thirdly is the product designing and product pricing and of course needless to say servicing.
Nishid Shah
Tier-1 capital adequacy has substantially come down in this quarter, I think if we have to correct it is 8.5% now, what brought it
down substantially, is it just the aggressive...
Sudipto Sil
Actually the capital adequacy numbers that we had given out they were just approximated numbers and we have yet to issue
the audited numbers. The third quarter profits are not been included here, so in the third quarter profits are included probably
higher.
Nishid Shah
But would you have any capital raising plan in the next 12 months.
Sudipto Sil
Next 12 months, we will address this issue in next fiscal only, depending upon our growth and requirement, we will address
this issue on next fiscal.
Nishid Shah
Okay, all the best and thank you very much.
Moderator
Thank you, our next question comes from the line of Hiren Dasani of Goldman Sacs please go ahead.
Hiren Dasani
Just couple of data points, what is the outstanding loan book in three year and five year product now.
Sudipto Sil
Three year product is slightly above 10,500, closer to 11,000, that is called the fixed or floating which we have discontinued
and the advantage five product is slightly less than 5000 Crores.
Hiren Dasani
Lets say about 4500 complete.
Sudipto Sil
Around 4800 to be closer.
Hiren Dasani
Okay and when you say the incremental spreads 1.65% are they for the quarter or for the 9 month.
Sudipto Sil
No actually it is the spread is on a year end date that is what we have been clarifying in the earlier part of the call that it is
spread as calculated on that particular date that is on the reporting date of December 31.
Hiren Dasani
Just to understand on that date what is the lending rate and what is the incremental yield and incremental cost.
Sudipto Sil
That is correct.
Hiren Dasani
It is not average for the 9 months, what is the incremental.
Sudipto Sil
Absolutely not.
Hiren Dasani
Okay, you said that this product can be modified or you know it introduced the new projects, sir are you basically saying that if
it is classified as teaser loan then essentially what we have to do is that we have to make incremental 2% provision, right,
incrementally also for this kind of product, so in that case it may have to be modified, and any clarification on whether we have
to maintain this 25 basis point standard asset provision as well.
Sudipto Sil
No as of now we have not got any clarification in fact that was Reserve Banks guideline for NBFCs for all categories of assets,
they have not mentioned anything specific for housing loans, so as of now, we do not think it is applicable for housing finance
company which is regulated by NHB.
Hiren Dasani
Sir, would it be fair to assume that as in the past NHB will probably follow RBI.
Sudipto Sil
No, not necessarily Hiren because…
V.K. Sharma
There had been suite the guidelines immediately. Actually that is not correct because there had been instances where
Reserve Bank has introduced guidelines for higher capital adequacy ratio for NBFC but they have not been followed by NHB,
so there have been instances where it has not been followed in total by NHB but having said that we will await that is the
reason no clarification of further guidelines.
Hiren Dasani
Do we keep any standard asset provision other than this 2% for the…..
Sudipto Sil
10 basis points on retail standard assets and 90 basis points on the nonretail segment.
Hiren Dasani
That we do it as an appropriation of the profits right? It is not part of the P&L.
Sudipto Sil
No, it is through the P&L only.
Hiren Dasani
Okay, great, thank you.
Moderator
Thank you. Our next question comes from the line of Vivek Verma from Edelweiss, please go ahead.
Kunal
This is Kunal. Yeah, just taking forward that question on standard asset provisioning of the 10 bps on retail and 90 bps on
commercial, since we have mentioned that we have utilized almost 90 to 100 crores to make the provisioning towards 2%, so
is it that now this standard asset provisioning has been utilized towards our 2% requirement on these special loans.
V.K. Sharma
Yes.
Kunal
Yeah, so as of now, I do not think that we would be carrying anything say 10 bps on retail standard or 90 bps in this quarter we
have utilized that.
V.K. Sharma
Yeah 10 bps on standard assets.
Kunal
Okay, so we have utilized that entire thing. Okay and the other question is would it be safe to assume that if I am running at
the incremental spreads of 1.65% and with say most of the loans being under Advantage 5 in Q3 and I am also providing say
2% on that, so at the ROA level does that seem to be incurring much lower or say at the negative ROA on this particular
scheme if I include this 2% kind of provisioning.
Sudipto Sil
No actually you have to look at it separately Kunal, because if you are looking at the incremental spreads only on the new
business on advantage side, we have increased the rates between 50 to 85 basis points with effect from January 1, 2011, so
whatever spreads we were generating on that business has gone up by 50 to 85 basis points.
Kunal
Yeah, so now what would be the rates like on an average, what we will be doing on Advantage 5?
Sudipto Sil
It will be closer to 10.
Kunal
It would be closer to 10 and our incremental as we can see over here the incremental cost of funds they say 8.3, the way we
ended in December, okay, so on that it was approximately say 1.7% kind of spread which we were making, okay, and over
and above that we are making 2% kind of provisioning.
Sudipto Sil
So that provisioning was as of December 31, what our chief just mentioned is that we are awaiting further clarity from the
regulators and once that clarity comes in either which way then we will take a view.
Kunal
Okay, so apart from this suppose if this on the standard asset side if nothing comes up and say it is accepted that the teasers
loans are still not say our Advantage 5 is not a teaser loan or something then what is our view with respect to Advantage 5
considering the rates moving up and most of the guys have also withdrawn from the market their special schemes, so what
would be our outlook, would be we be continuing with this Advantage 5 then.
Sudipto Sil
That also has to be kept the overall market demand, customer requirement, cost of fund, these things have to be kept in mind
but we will not jump on it as of now, we will wait for the clarity to emerge and then we will take an appropriate stand.
Kunal
Okay, thank you.
Moderator
Thank you. Our next question is from the line of Venkatesh Sanjeevi from ICICI Prudential, please go ahead.
Venkatesh Sanjeevi
Just a basic question on the trends you are seeing now with the higher rates of interest right now. Are you seeing any increase
in repayments and prepayment by any chance?
V.K. Sharma
No, last year it was 8.3%, before that FY09 and it was 7.7%, it is still for 9 months we have seen it is 7.5% only.
Venkatesh Sanjeevi
Just 7.5% sir.
V.K. Sharma
Yeah prepayment. So prepayment say it is not that substantial prepayment has come or it is coming.
Venkatesh Sanjeevi
Okay fine right, thanks.
Moderator
Thank you. The next question is from the line of Ajitesh Nair of UBS, please go ahead.
Ajitesh Nair
Sir just a couple of questions, one is how much do you think you can hike PLR further before it starts impacting demand or
may be repayments.
V.K. Sharma
1% margin we already have because if you see the market, there are companies who have already kept 15%.
Ajitesh Nair
Right and sir how much is…..
V.K. Sharma
Or anything any technical you want to understand then Sudipto will tell you.
Sudipto Sil
Ajit if you just go back to say end 2008-2009 scenario, the interest rates in the system was in the region of around 11.5 to
12%, we are still quite away from that and in those days also, LIC Housing had delivered a disbursement growth of more than
25%, situation is definitely not a 2008 or 2009 kind of a scenario, so we believe that this is a user driven demand and to that
extent the interest rates do not hurt to that extent.
Ajitesh Nair
Okay, so you said we are still some time away before we hit the tolerance.
Sudipto Sil
Definite yes.
Ajitesh Nair
Okay, also sir just wanted to understand have we hiked the PLR in January or we have the changed rates on fixed Advantage
5.
V.K. Sharma
We have done both in from January 1.
Ajitesh Nair
How much are we PLR basis.
V.K. Sharma
PLR we have 50 basis points.
Ajitesh Nair
Okay and sir finally on how much is the outstanding approvals which are yet to be disbursed.
V.K. Sharma
2000 to 3000 Crores.
Ajitesh Nair
Okay got that, thank you sir.
Moderator
Thank you. The next question is from the line of Manish Shukla of Deutsche Bank, please go ahead.
Manish Shukla
You have said, PLR was high by about 50 basis points, so what will be a new floating rate loan rate for now.
V.K. Sharma
Yeah, it will start with 10.75%.
Manish Shukla
Okay and Advantage 5 is close to 10%.
V.K. Sharma
Right.
Manish Shukla
Okay, can you tell me the risk-weighted assets number at the end of quarter?
Sudipto Sil
See actually as I mentioned we are still in the process of giving out the capital adequacy numbers. We have just some
approximated numbers; we are working on it, in a couple of days that will be shared.
Manish Shukla
Okay fine, the rest questions are answered. Thank you.
Moderator
Thank you. Our next question is from the line of Nishit Dholakia from Birla SunLife Mutual Fund, please go ahead.
Nishit Dholakia
Yes sir, I just wanted to know what is the cummulative standard provision that we are now carrying in the book.
Sudipto Sil
It is around 464 Crores Nishit, this is Sudipto.
Nishit Dholakia
Okay thanks Sudipto.
Moderator
Thank you. Our next question is from the line of Megha Gupta from Birla SunLife, please go ahead.
Megha Gupta
My question was on LIC’s share holding now, do the extend guidelines and framework applied where as 33% remains the
minimum share holding that LIC would maintain at all points of time and 49% remains the maximum or are we in discussions
with LIC regarding any changes in the same.
V.K. Sharma
No that our managing director also just said they will make any change in that.
Megha Gupta
It remains within this band.
V.K. Sharma
That is right.
Megha Gupta
Any immediate near term discussions with LIC regarding increase in the stake from the current level.
V.K. Sharma
Not required. At this stage we are not taking any view on this.
Megha Gupta
Alright. Thank you so much.
Moderator
Thank you. Our next question is from the line of Neha Agarwal from Goldman Sachs. Please go ahead.
Neha Agarwal:
Just wanted to understand what’s the average duration on our liability side?
Sudipto Sil
It is a five-year.
Neha Agarwal
So sir, at what point in time, would our cost of funds on an average basis increase given, what's happening to the incremental
cost of borrowing?
Sudipto Sil
Neha this is Sudipto. Actually if you look at it, we keep on borrowing throughout the year. At every point in time if there is an
increase in the borrowing cost, there will obviously be some kind of increase in the average cost.
Neha Agarwal
What I am trying to understand is, would there be a point where the average cost of fund would reprise at a faster rate, given
what’s happening on an incremental basis. So if I understand, you are currently lending at about 10% on an incremental basis
and borrowing at about 9.25 % and when is it that it starts to hurt on average basis, given what is happening to incremental
cost?
Sudipto Sil
I will answer that question also, because if you look at the incremental borrowings for a year, it is roughly say around 15 to
20%, on a net basis to the balance sheet. So there will always be a little bit of trickling efforts, there will not be any major kind
of spikes in the borrowing cost. The rate at which the cost of fund is increasing in the system, we believe that whatever
increase in cost of fund happens that will continue to happen on a gradual basis. In fact if you have seen over the last quarter
it has gone up from 7.91 to 8.12, the average cost of fund between September 30th and December 31st. Within that period of
time the rates in the wholesale market had gone up by more than 100 basis points.
Neha Agarwal
And any sense on the competitive scenario with State Bank of India still sticking 8.5% in year 1. Are we seeing concern on
growth given that?
Sudipto Sil
Yeah, we have grown at for the quarter our retail sanctions have grown by 90%. For the month of December, which is just last
month, our retail sanctions have grown by 60%, definitely those will be best in the market figure, so that itself answers your
question.
V.K. Sharma
We are not going to compete with the State Bank of India. They have a different....
Neha Agarwal
Is it a different segment sir.
V.K. Sharma
Yeah, not only segment, they have a different way of business.
Neha Agarwal
Because I would think if I was trying to buy a house, I would be very price sensitive in terms of the rate that I am getting.
V.K. Sharma
No, I mean, now that market has changed in India, even in housing. Housing is also becoming like a consumer market, so
people are not only price-sensitive, people place sensitive also. Servicing, relationship all these factors take into account,
otherwise we would not have been able to show the growth, used advertisements and other thing. Ultimately what happens
that where the customer ends up, that they have word to mouth.
Neha Agarwal
Sir, what growth are you looking for in FY12?
V.K. Sharma:
30% we are targeting, that we have done from the beginning, before also very tried to keep it on this number.
Neha Agarwal
Thank you sir.
Moderator
Thank you. Our next question comes from the line of Shrey Loonker from Reliance Mutual Fund. Please go ahead.
Shrey Loonker
Sir, just wanted to get a sense, one is, if on the incremental basis, what percentage of your incremental disbursement of
individuals are coming into Advantage 5 and normal floating, if you could give that mix?
V.K. Sharma
It is 70, 30, I think.
Shrey Loonker
Sir, 70% is coming in Advantage 5. And what could be a top three geographies in terms of historically that are your strong
footholds?
V.K. Sharma
See, in volume I will say that volume and growth both, support is coming from the south, that is, Chennai, Bangalore segment,
and very fast-growing area is a central region that is Lucknow and Bhopal.
Shrey Loonker
Right, on an outstanding basis, what will be your large top three geographies, sir?
V.K. Sharma
Outstanding basis top three geographies will be, I will say Bangalore, Chennai, Hyderabad and Mumbai, these are the four
major….
Shrey Loonker
Okay. Thank you.
Moderator
Thank you. Our next question comes from the line of Amit Ganatra of Religare AMC. Please go ahead.
Amit Ganatra
Sir, what’s the total size of the balance sheet and the total borrowing number?
Sudipto Sil
Total borrowing is roughly 42,075 crores, and the total loan assets are 46,380 crores. Total assets will be closer to around
47,000 crores. We do not have any other major assets apart from liquid investments and cash.
Amit Ganatra
And also looking from a longer-term perspective, if I look at, mix between your retail and corporate bodies or this project
finance in FY07 it was 3%. It's basically kept on going up and now it is 11% or maybe previous quarter it was 11, now it was
10.5. So, last so many years if you look at the rates, it has not gone up significantly. So it seems that, obviously that is a highyielding
product. So, this is the segment basically which is compensating in that sense or enabling you to maintain the spirit.
So incrementally next, if I take a longer-term view, will this keep on going up, developer portfolio as a percentage of total
portfolio?
V.K. Sharma
We will keep it between 11-12%, that is what we're keeping focus at present.
Amit Ganatra
Because two years ago I remember clearly, the company was talking about keeping it between 7 to 8% or then basically the
bar went up, and then it was 10%. Now once again it has gone up…
V.K. Sharma
See typically what happens, that it depends upon the market demand. Market now particularly in the city market is driven
towards this apartments and builders related retail segments. So thing was happening, that particular builder gets tied up with
one of the company. So that has created a segment, wherein we have also to come.
Amit Ganatra
Agreed, but anyways see, it does not help in terms of your retail disbursements, as you mentioned in one of the earlier
questions that only 5% of the… I mean, any project that you are financing, you don't basically yet do 100% of the retail
lending….
V.K. Sharma
But we have to keep our presence that is the primary thing.
Amit Ganatra
But from an incremental basis just to understand that now you are talking about 12% but is it possible the next year basically
you raise it to say around 15% or so?
V.K. Sharma
No, no. I'm not sure about it, that we will be going that high.
Amit Ganatra
What if the liquidity situation remains tight and spreads basically contract….
V.K. Sharma
That is one area. Again what is happening in this real estate sector, is itself is a concern. Looking to that 11%-12% it is very
prudent.
Amit Ganatra
So you are saying that at any point of time, it will not go beyond 12%.
V.K. Sharma
And our retail growth is also equally fast. In retail if we are going by 30%, even maintaining 11% you will have to go there also
by 30%.
Amit Ganatra
Right. No, retail growth anyways is very much evident, but that portfolio basically helps you to manage the overall spread in
the portfolio and the overall ROAs for the company.
V.K. Sharma
Yeah. That you are right
Amit Ganatra
From that perspective, that portfolio is important for you. What I'm trying to understand is that, at any point of time, so basically
you are saying that it should not exceed more than 12%.
V.K. Sharma
No, no. It is not like that, the view will be taken depending upon the economic situation. Then again the need because builder
has to come forward for the loans. So it can go down, it can go up and what I'm trying to tell that, we will not go very
aggressive on that side, just to increase the margin, though our strength is retail only.
Amit Ganatra
Okay, thanks.
Moderator
Thank you. The next question is from the line of Ashish Sharma from Enam Asset Management. Please go ahead.
Ashish Sharma
Just want to get the sense on these two extraordinariness. Can you just tell me, this income from sale of mutual funds stake,
what will be the tax adjusted number for that, 136 is, I think before tax, what will be the tax adjusted number?
V.K. Sharma
It is a long-term capital gain, so it will be tax at the rate of applicable for long-term capital gains.
Ashish Sharma
Okay. So if I have to adjust extraordinary, so should we strip off 136 crores from the P&L end or should we do on a tax
adjusted basis?
Sudipto Sil
Actually, if you want to look at only the incomes then obviously the 136 is the net, but tax adjusted it will be lesser obviously
because long-term capital gain, so we have been holding the assets for fairly long period of time, tax outgo is likely to be much
less. We have been holding it since the late 90s or early 90s.
Ashish Sharma
Okay sir. And just another question on the provisioning expense we have taken on the P&L, what I understand from the notes
to account, is it that 235 crores was the total provisioning, as for the new norms 2% standard asset provisioning. We had taken
99 crores from the reserve we had, so the total provisioning was 320 crores.
V.K. Sharma
Yeah, that is right.
Ashish Sharma
Okay and how much was for Advantage 5, sir?
V.K. Sharma
Roughly one third will be there.
Ashish Sharma
As you were discussing the call, we're not sure that this will be classified as teaser loan or not. And if RBI has said that this
is…
V.K. Sharma
No, from my side I am sure that it is not teaser loan. The regulator has to take a comfort on that.
Ashish Sharma
Just want to get a sense; in case it is not classified, we can see a sort of right back also from this one to the P&L.
V.K. Sharma
Yeah.
Ashish Sharma
Okay. Thanks. That is all, sir. All the best for next quarter, sir.
Moderator
Thank you. The next question is from the line of Vikesh Gandhi from DSP Merrill Lynch. Please go ahead.
Vikesh Gandhi
Just one small quick question, as you mentioned that Chennai, Bangalore, Hyderabad, Bombay would be the largest market in
terms of your book. I just want to understand, all these four cities that you mentioned would have immense competition out
there, so how is that it's not getting supposedly reflected, when you say that there is no competition, I mean, just does not
connect, because these four cities are where most of the activities is happening in terms of real estate market. I'm sure
whether it is a NBFC or a bank, everybody would be jumping in.
V.K. Sharma
Yeah, there is competition in these four cities also, but maybe our presence is established and we have a very strong
distribution network. And then there is a kind of relationship chain, so that works. I would like to just quote one example, after
joining I had gone to one of the branches there in Chennai, when this came, just like that, ordinary person “a father comes with
son and daughter-in-law, get loan from LICHF. I asked them,” why you have come here”? No, no I have taken loan earlier, so I
am coming here only.” No issue of this, I asked him about interest-rate also and then bank also, because the next door the
bank is there. “No, no I have taken the loan here only, and I am comfortable”. So this is the approach of old customer, we have
been operating from fairly longtime and that lineage of typical LIC I will say, that works in our favor.
Vikesh Gandhi
Another small thing is that, just want to understand what could be your, almost a month has passed post December, and I
think your incremental cost was 8.3, would it be fair to assume, it is similar even now, or 20-25 days later or it would have gone
up by…..
V.K. Sharma
Borrowing cost, you are saying. It is fairly same, in the month after November; we borrowed around 9.20%, 9.30%, 9.38% like
that. So more or less, till date we are on the same, even resetting also we are doing it less than that 9%- 9.25%.
Vikesh Gandhi
And where most of the borrowings in the last quarter particularly would have come from which side, banks…..
V.K. Sharma
That is where, which has given to me a confidence as CEO. You will be surprised there are not less than 30 organizations and
it is not LIC, that is the best part. On all insurance companies, all banks, mutual funds all have participated in our NCDs.
Vikesh Gandhi
So what would be the mix in the last three months, in terms of borrowings, in terms of banks, bonds, short-term money?
Sudipto Sil
The short-term is obviously is much less, we do not do short term borrowings. Most of it has coming from the three year plus,
we have done a couple of bond placements, so I would leave that in the last two months, that is December-January,
predominant it has been issuance of bonds, and also to a fair extent term loan from banks.
Vikesh Gandhi
Okay, so it is a mix of just term loans and bonds.
V.K. Sharma
That is true.
Vikesh Gandhi
Okay, fine. Thank you.
Moderator
Thank you. Our next question comes from the line of Praful Kumar from Principles Mutual Funds. Please go ahead.
Praful Kumar
What is the average age of the liabilities borrowings today?
V.K. Sharma
Five years.
Praful Kumar
Can you give us an exact split in terms of bank loans and borrowing….how you stand?
Sudipto Sil
Predominantly, this is around 58% from the bonds, that is long term convertible debentures, around 25% is term loans from
banks, and we have got a subordinated debt in the upper Tier-2, which comprise another 7%, and refinance from NHV closer
to 4%, then existing old term loans from LIC at 2% and the rest will be miscellaneous including retail deposits.
Praful Kumar
Thank you sir and all the best.
Moderator
Thank you. Our next question is from the line of Mandhar Gadkari from India Advisory Partners. Please go ahead.
Mandhar Gadkari
Just two questions. One is, would you have a data along the incremental disbursements. How much is for a fresh loan, fresh
buying versus or kind of a resale?
V.K. Sharma
Fresh buying versus resale. It is 80-20.
Mandhar Gadkari
Second question was on this developer loan which in Q3 … you obviously slowed down Q4, you would again try to increase.
But looking at the real estate market per se where the volumes per se are drying and how do you decide to give which
developer because you need…..
We have prioritized it. Like that ongoing projects here we have part-financed.
Mandhar Gadkari
But incrementally like a kind of scenario assuming there is a dry up in the volumes and there is no cash flow to the developer.
So how do ensure your quality of asset or the NPAs, how do you ensure, though you may have a security? How does it work?
V.K. Sharma
At present we have security more than 2.5 times. There we have cushion and whenever we are doing that disbursement prior
to that we go through the exercise once again. We ensure that the quality is maintained, and we also assess the track record
of the developer and financer because our number is limited. It is not like that we are giving 2000-3000 developers over the
country, selected 50-100 people are there.
Mandhar Gadkari
And I think, you said the spread is around 300 to 400 bps more than the retail.
V.K. Sharma
Yeah, that is true.
Mandhar Gadkari
And sir, geographical spread of these developers loan and would it be PAN India….
V.K. Sharma
Yeah. Primarily it is four cities. Mumbai is main, then Bangalore, Chennai and Delhi NCR. Other cities we have not done.
Mandhar Gadkari
Thank you very much.
Moderator
Thank you. Ladies and gentlemen that was the last question. I would now like to hand the floor over to Mr. Anish Damania of
Emkay Global, for closing comments.
Anish Damania
Thank you very much. On behalf of Emkay I would once again thank you all for joining the call. Have a great day.
Moderator
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference call. Thank you for joining us. And
you may know disconnect your lines. Thank you.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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