Low-ticket housing is a big growth area and we are focusing on that: V Vaidyanathan, Capital First

In a chat with ET Now, V Vaidyanathan, Capital First, says the story of demonetisation is over. GST is broadly settled. There is no new clouds in horizon that we should worry about.

Edited excerpts:

It is a strong set of numbers. What are the key drivers of a 50% NII growth and PAT growth and also that impressive 32% AUM growth.
Well basically because the AUM has grown from Rs 20,000 crore to Rs 25,000 crore in nine months, that has directly translated to the NII which has actually grown quite strongly. The total income from both NII and fees have grown from Rs 427 crore in the same quarter last year to Rs 639 crore in the same quarter this year. That straightaway translated to the bottom line and then you see the increase in profits by about 49%.

Given that the merger of IDBI Bank has been announced, how should we look at Capital First basics ratios? Do you think the next two-three quarters could be transition cost and we should ignore that or would you be able to hit the ground running?
First of all, the merger process itself could take anywhere between six and nine months. I would say because there are a number of regulatory approvals to be taken along the way and in the interim, it is business as usual. We have really a good business model. We have good access to customers and good systems for recovery. Basically, for us it is business as usual. We feel that to continue to grow at about 30 odd percent this year should be our main focus. The merger will happen and the ratios will show up at that point of time. It is too early to comment upon that.

But one issue that the market would have is the uncertainty over what the asset quality picture would look like for the combined entity. With IDFC Bank having slightly higher stress on their books, could you qualify what the total outlook would be thereof?
Again, in our case for example, we find that the NPA has continuously been stable or trending downwards for eight quarters in a row except during the demonetisation phase when it went up by about 25 bps. If you take a year on year story for Capital First, the gross NPA has come down by about 5 bps, the net NPA is flat. If you take a sequential quarter, the net NPA is down by 3 bps. As far as we are concerned, what we are carrying into that story is very stable asset book and we absolutely see no reason whatsoever for the asset story to get disturbed for Capital First. We also feel that the story of demonetisation is over. GST is broadly settled. There is no new clouds in horizon that we should worry about.

Your asset quality at 90 days has remained fairly stable quarter on quarter, what is the outlook on this?
We believe underwriting standards are really very good and our credit processes have been worked and reworked continuously over the last many years. It has been tried and tested on a large base for Rs 25,000 crore now. We feel quite confident that this will stay this way in the years to come. The other significant feature for Capital First is that the wholesale book is really quite small, just 7%. No longer are we even bothered that it could move the needle. The big story is retail and retail is very stable.

How has the retail book shaped up and what is the view on disbursements going forward?
As you see, the loan book for this year is growing at close to 30%. We had guided for about 23% to 25% in the beginning of the year. We feel that actually growth is coming back quite strongly not just in our loan book but also other companies -- at least the Marutis and the two-wheeler companies and the FMCG companies. We saw the Unilever numbers up 11%. The way we see it is that all around, consumption is coming back quite strong irrespective of which sector we are talking about. The only bad results we saw was probably the telecom sector because of their vows and so on. But those probably are an exception.

I would say that since consumption is back and many of our businesses are based on consumption, it augurs pretty good for growth. For next year, we will still guide about 25% which is we feel more comfortable saying to our investors in the public but this year has been a bit better than that.

Where do you see your spreads and margins heading? There is high competition within the retail lending space and there is the issue of the rising bond yields as well?
Really, a large number of players have entered the consumption market and the retail market over the last four or five years. We could see that even state owned banks are getting more active in the market. You could see the news from the ministry yesterday asking banks to move in that direction. Private sector banks have always been doing very well here. NBFCs are all focussing here and so in that sense, there is a lot of competition here.

But we should not forget that the market is absolutely large and we should really focus on how large the market is and how much we can grow and if more players come to the sector, it is actually good because it makes this a much a more vibrant and a larger play rather than being one of the few players in the market that is never very comforting.

Interest rates have been on a decline. Not only have they helped your cost of borrowing they have also helped the borrower because the EMI has come down but in the next 12-18 months, if interest rates start going higher, can borrowers feel the pinch of higher EMI? Could that lead to NPA or we are nowhere close to that cycle?
My sense is that we are just absolutely nowhere close to that cycle because if you remember the structural shifts over the last four years from 2014 to now, at least things are down by at least a 1.5%, home loans were at about 10% four years ago. It is now at 8.5%. It has definitely eased people’s EMIs and may be it has made them afford more. So the defaults really are not coming from an interest increase or defaults are not reducing, because interest rates coming down. So, it is one of the variables but not a significant one.

The defaults if any, always come from a larger play in the economy of job losses or if Indian economy is not growing at 7.5% and starts growing at 4% or so. These are the kind of macro factors that affect these things not yields. As far as the Indian economy is concerned, frankly you see the global stories, you see what the prime minister is talking at Davos, we see it all around us. I think, things are looking quite good. I really see no reason for problems.

My next question would be on loan against property (LAP). The real estate market per se is not in a great position. The housing disbursement number says we can be selectively bullish. Some companies are feeling the impact of base and the tightness in the real estate market. What is your outlook on your LAP book?
Definitely with the property prices stabilising over the last three years, in some markets like Delhi NCR actually coming down by about 20% odd, the loan against property market is not really be bet on to be the backbone for growth of any company. It is a good business, it probably grows by about 10-12% per year but we should not power it too much ahead because property prices are where they are. But the important thing as all companies will tell you is that lending on the loan against property is largely backed by cash flows. We do not see a delinquency issue there. The big growth area, where we feel really bullish is actually the affordable housing segment. That is really coming along.

You may have seen the data about how housing sales are not improving but that is largely the large-ticket items where also we are beginning to see some early stage improvement. You talk to any developer doing projects in low-ticket housing, their products are going out like a flash. This is a big growth area and we are really focussing on that.