Comfortable on capital for next 12-18 months

In an interview with ET Now, Nirmal Jain, Chairman, IIFL, talks about the IIFL Home Bonds and the macroeconomic scenario. Excerpts:

ET Now: Tell us more about this NCD issue of home bonds and what is the amount that you look and the interest rate that you offer?

Nirmal Jain: This is the first issue from the Housing Finance Company and we have named it IIFL Home Bonds. The base issue size is of Rs. 250 crore and with any greenshoot we can retain up to Rs. 500 crore. The issue is opening on December 12. The coupon rate is 11.52% and the interest is payable on a monthly basis and therefore, the annualised yield works out to 12.15% per annum. The bonds are rated AA- by CARE as well as CRISIL, which means a high degree of safety and very low credit risk. They are secured by home loans and mortgage receivables. All our issues have got very good response and we believe that this will also be a good product for the customers because home loan as an asset class is perceived and also has a track record of being safer than other asset classes.

ET Now: What is the kind of loan book growth that you target over the next 6 to 12 months then?

Nirmal Jain: The home loan market has seen steady growth. Slowdown in the economy has impacted it very little. Now that the business is starting with a small base, the home loan business will grow faster at maybe 25-30%, but in the longer term, we target slightly more than the industry growth rate, which is anywhere between 15% and 20% per annum.

ET Now: How comfortable are you on overall capital adequacy? Any capital raising that you plan on the tier 1 or the tier 2 front?

Nirmal Jain: No, the company has adequate capital and we are raising Rs. 500 crore by way of bond issue which will be good enough. So we would not need to raise capital for at least 12 to 18 months in this company.

ET Now: With RBI likely to hike interest rates further, will you be able to pass on the hike to your borrowers? In what range do you see margins going ahead then?

Nirmal Jain: After the tightening of August-September, interest rates have come down. The repo rate has been pushed up, but the marginal standing facility, which is about loans to banks against the additional government securities portfolio, has been brought down by 200 basis points. It used to be at a premium or at 300 basis points higher than the repo rate. The gap has been reduced to 100 basis points. Also the liquidity has eased in the market. In fact, RBI's scheme FCNR (B) has got very good response and more than $30 billion is estimated to have come in. I think the market conditions are quite okay and the repo rate now I do not think is a benchmark rate because it is not the rate at which banks are incrementally borrowing or even lending is not packed with that rate in any significant manner. Therefore may be in the medium term also, we could see interest rates heading southward as inflation pressures will ease and the growth scenario improves.

ET Now: With the CAD and GDP improving and signs of the macro situation improving further, do you think this will give the much needed momentum to the markets?

Nirmal Jain: The macro scenario has been improving because CAD has been the biggest worry. It impacts rupees parity versus the dollar and therefore even FII investment flow. It also causes fiscal deficit because our petrol and diesel are subsidised. So when the prices go up, the accounting burden in fiscal deficit also goes up. Therefore, a falling CAD is great news, crude oil prices also seem to be softening and most of the predictions of analysts are that they will head southwards. Given this scenario, the macro environment has improved. We also saw that PMI has improved. Although infrastructure and the larger projects are still lagging behind and they will take a while to start contributing, but I am an optimist and believe what we have seen till now has been the worst and things from hereon should be incrementally better. Growth may not go to the level that we expect or where we deserve to be, which is 8% to 9% per annum, but at least they are in the right direction.

ET Now: Do you think, however, that this improved sentiment will help attract better capital flows going forward?

Nirmal Jain: No doubt about it. What investors are looking at is not one government versus another, but a stable and clear headed government and a reform-oriented government. So that is what everybody is expecting now and a lot of foreign capital that can come to India, what we have seen till now is just a fraction of it. Therefore one should be optimistic on that side also.

ET Now: In the backdrop of one of the largest corporate groups pulling out of the banking licence fray, what is the status of your licence application and have you been in the dialogue with the RBI? I know you are hopeful of getting the licence.

Nirmal Jain: In our licence application itself we made it very clear that we are willing to comply with all the guidelines and RBI sought some more information which we have furnished and time to time whatever queries or additional information they need we give those to them promptly.

ET Now: What is the latest that you can share with us in terms of the NSEL issue? That is something that would also be important from a viewer perspective?

Nirmal Jain: We have not been the affected party in terms of our proprietary exposure of financing. So we are not that way a directly affected party, but some of our broking clients have taken exposure and we have been trying to make sure that they get their money back as soon as possible. So things are moving in the right direction.

The above interaction appeared on television and the transcript is sourced from www.economictimes.com