idbi homefinance ltd Management discussions

IDBI HOMEFINANCE LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS OPERATIONS: Profitability The net interest income during 2007-08 increased by about 56% to Rs. 58.59 crore from Rs. 37.53 crore during 200607. Interest cost for the year ended March 31, 2008 increased by about 48% on account of increase in total borrowings by 18% and also re-pricing of the loans during the year. Total income (net of finance charges) increased by about 32% to Rs. 71.23 crore from Rs. 54.11 crore during the year ended March 31, 2007. After considering all non-interest expenses (Rs. 22.64 crore), the PBT for the year ended March 31, 2008 increased by 40% to Rs. 41.53 crore from Rs. 29.62 crore for the year ended March 31, 2007. After taking into account provision for taxation of Rs. 11.64 crore, PAT increased by 29% to Rs. 29.89 crore from Rs. 23.12 crore for the year ended March 31, 2007. Sanctions & Disbursements Your Company registered a marginal growth in sanctions and disbursements during the year. The loan sanctions for the year 2007-08 rose by about 5% to Rs. 1173 crore from Rs. 1116 crore in the year 2006-07. Similarly, disbursements during 2007-08 increased by about 2% to Rs. 856 crore from Rs. 840 crore for the year 2006-07. Loan Outstanding The outstanding loan portfolio increased from Rs. 2147 crore as at March 31, 2007 to Rs. 2710 crore as at March 31, 2008 registering a growth of about 26% during the year. Details of Loan Portfolio The Company continued to focus its business on salaried employees. Out of the total housing loan portfolio of Rs. 2710 crore as on March 31, 2008, 97% of loans were extended to salaried employees with the balance 3% of the loans being given to self-employed businessmen and professionals. As on March 31, 2008, 88% of the loans were at variable interest rate and the balance 12% were at fixed rates of interest (with majority of these loans having fixed rate with a three-year interest rate review clause). The entire outstanding loan portfolio as on March 31, 2008 was extended to individuals. The housing loans, including staff housing loans (Rs. 7.40 crore) are secured. To cater to all segments of home owners, your company besides individual housing loans, also offers Home Extension Loans, Home Improvement Loans, Mortgage Loans, Fifty Plus Loans for senior citizens and Composite Loans which include financing of both, the house as also the plot on which the house is constructed. In view of the current interest rates scenario, the company has temporarily suspended the fixed rate product and variants thereof. The company is adopting a cautious approach and reintroduction of the fixed rate product will be decided depending upon the market conditions. Further Issue of Capital In August 2007, your Company made a further issue of capital of 1,50,00,000 Equity Shares of Rs. 10/- each for Cash at Par by way of Rights Issue. The issue was fully subscribed. The proceeds of the issue have been used towards the Companys long-term requirement of funds. Consequent upon further issue of capital, the Capital Adequacy Ratio improved substantially. Capital Adequacy The prudential accounting norms of the National Housing Bank (NHB) require the Company to maintain a minimum capital adequacy ratio of 12% of its risk weighted assets. As against NHBs norm, the Companys capital adequacy ratio stood at a comfortable level of 16.01% as on March 31, 2008. Non-performing Assets (NPAs) Your Company has been conscious of the need to maintain a high level of asset quality. Accordingly, organisational changes have been made to facilitate focus on collections, while at the same time strengthening the credit approval mechanism. These measures have resulted in an improvement in asset quality with Gross NPAs reducing from 1.06% as on March 31, 2007 to 0.99% as on March 31, 2008 with Net NPAs showing a corresponding reduction from 0.73% as on March 31, 2007 to 0.56% as on March 31, 2008. Your Company will strive to maintain and improve its asset quality during the current year. Borrowings The Company has outstanding loans from banks aggregating Rs. 2037.46 crore. In addition, your Company has availed of refinance assistance from NHB to the extent of Rs. 206.94 crore. It has also tapped the primary markets through issue of commercial paper for which it has been accorded the highest rating of Al+ by ICRA Ltd for maximum maturity value of Rs. 600 crore. The commercial paper outstanding as on March 31, 2008 aggregated Rs. 300 crore. The Company can borrow a maximum amount equivalent to 16 times of its net worth as per Housing Finance Companies (NHB) Directions 2001. The aggregate borrowings as at March 31, 2008 including Subordinated Debt of Rs. 80 crore was Rs. 2544.40 crore resulting in a Debt-Equity Ratio of 13.77:1. The Company has the right to change the rate of interest on the first day of every calendar quarter on variable interest rate loans extended to customers. Accordingly, the short-term loans were raised to fund variable interest rate loans. Moreover, as a matter of prudence, your Company has unavailed bank loans / liquid funds to meet at least 3 months of debt servicing of principal amount of maturing loans. Your Company has been adhering to the ALM norms stipulated by NHB. Internal Audit During the year under review the Internal Audit Department was strengthened to commensurate with the requirements consequent upon growth in Operations. During the year, the audit exercise was carried out with a broader scope and in a more structured manner. The observations of the Internal Audit Department were placed before the Audit Committee of the Board. Information Technology Systems In the prevailing environment, a price advantage can at best be temporary as the other providers of housing finance match the rates with competitive offers. In your companys opinion, only a superior technology-backed service arm can provide an enduring cutting edge leading to provision of key data for facilitating quick decisions in business operations. Your Company has automated its Business Operations Processes as also its Administrative and HR processes. All the branches and operating offices have been connected to the Central Data Base through a dedicated Leased Line mesh. The Company has its Data Center at the Corporate Office at Pune, housing the high-end data processing equipment keeping in view the future business plans. The Data Center facilitates processing of Business Applications, Administrative and HR applications as well as Messaging Solutions. The IT Systems set up has adequate safeguards for continued business activities on site. The Company is reviewing its Disaster Recovery (DR) facility to ensure continuity of business in case of any system failures due to technology or unforeseen events. The Company uses a Total Home Loan Solution (THLS) for business operations, interfaced with the Financial Accounting. The automation measures taken have facilitated quality customer service and have provided the platform for high volume growth. Compliance with the directions of National Housing Bank (NHB) Your Company has been complying with the guidelines and directions issued by NHB from time to time. New Corporate Logo The Company has adopted a new Corporate Logo with a view to identifying itself closely and in more demonstrative way with IDBI group. The new logo has a colour scheme identical to the parent logo and your company is confident to get further mileage with the same.