Profit growth has been quite healthy and we are also seeing strong growth in the NII. What led to this kind of performance?
Mortgage loans remain the engine of the company’s growth. Liabilities are a powerful factor in profit. We have raised almost Rs 26,000 crore in bonds during this fiscal year and replaced many high cost bank loans. Combined with strong growth in mortgage lending, an evolving liability profile has enabled us to maintain a spread of nearly 325 basis points on our business.
What led to this spread expansion? Are there other possibilities for spread expansion in the future?
First, we have benefited from strong demand for our liabilities on the liabilities side and subsequently from a decline in bank loan MCLRs. This helped widen the gap, as we released an indication after demonetization that financing costs in the country would go down and housing finance companies would be the direct beneficiaries of such a move.
Second, the Pradhan Mantri Awas Yojana announced on December 31 but implemented in March, also reinforces sentiment on the affordable housing segment which is growing at a very good pace. So there has been good growth in our mortgage business and a secular decline in our bond yields as well.
Your loan portfolio has experienced strong growth of 33%. What was your fourth quarter disbursement table that you recorded and what is the outlook for FY18?
The disbursements were very large, we had disbursements worth Rs 12,500 crore for the fourth quarter and Rs 33,500 crore for the full year which represents a growth of 28% on the disbursement side. It is clear that home loans are gaining momentum when it comes to affordable housing.
Incidentally, the company also crossed a lakh crore in the size of the balance sheet during this fiscal year and we believe that with Pradhan Mantri Awas Yojana it is now a very compelling home buying decision in the country, in particular. in the affordable housing segment. The secular growth will continue over the next few quarters.
Your loan growth has also reached a CAGR of 27% over the past five years. Is this the kind of loan growth that is also sustainable for the next three years?
Clearly. While compound growth for the past six years has been 27%, this growth has accelerated in recent years. A year ago, this growth was 31%. This year we have recorded a growth of 33%. This is clearly based on the structural demographics and urbanization that is happening in India and now with Pradhan Mantri Awas Yojana clearly offering a subsidy to the middle class for the first time and an effective rate on the mortgage going down to half for one hundred for a Rs. 24 lakh home loan.
Indeed up to Rs 36 lakh of mortgage loan, the effective interest rate is lower than the rental yield. This is the first time this has happened in India, but once the effective mortgage rate is lower than the rental yield, people are very inclined to buy these houses for the first time and we believe it is the growth that will boost the penetration of home loans in the country which is only 9% as we speak. So what was 31% a year ago is 33% this year. I only hope that this will accelerate in the future and we see this strong momentum continuing.
Although the quality of your main asset is stable, you have a high exposure to the book Loan against Property (LAP). How has the NPA stress been in the home loan as well as in your LAP book?
As a first step, we have undertaken to rate all our LAP loans with the two main rating agencies.
and . Every home loan we have disbursed from April 1, 2015 goes to them for review and rating and 99% of our home loan qualifies for their top three scores on a scale of five.
Obviously, this is a good quality loan against a property that has been sourced. We have not seen any change in the post demonetization delinquency profile due to our push on the quality of these loans for real estate. Mortgage loans continue to be the safest risk in the country across all classes of financial assets in the industry. Defaults are around 20 to 30 basis points and our experience has been very similar.