In Q2, 90% of L&T Fin’s new disbursements are for completing own projects: Dinanath Dubhashi
- This is not the time to run after growth.
- Profit growth in the future will come once the overall industry starts turning.
- Close to Rs 1,700 cr out of Rs 1,800 cr total exposure is turning green.
You have reported a growth of 20% while profits were up 1.7%. What was the profit growth and what was the driver for the quarter gone by?
I would like to put this result in perspective. The first quarter of FY20 has been one of the more difficult quarters for the NBFC industry as such. There are no two ways about that. What are the three difficulties that the industry has faced? Number one illiquidity. Number two is growth in the core sectors, growth in car growth or tractor growth or two-wheeler growth in the core sector and the last is certain news, rumours, etc, about some of the names, some downgrades, defaults happening.
It has been three-fold bad news coming for the sector. Let us talk about each one of them and you will see our results in that perspective. The first is liquidity. In very short, we have been able to raise good amount of funds, diversify our borrowings to retail and to foreign and most importantly keep our gaps positive and maintain about Rs 5,000 crore of liquid assets on our book.
At the same time, the cost of funds has gone up marginally by just about 6 bps. So, liquidity has been maintained. Second, definitely, there has been a growth momentum in the rural market. The housing market everywhere has been slow. We are happy to say that we have been able to maintain or even grow market share. Having said that, what we have ensured first is asset quality. We have always maintained our asset quality best and that can be seen from falling NPAs.
Second is we have maintained margins and growth has been one of the results. We have not run after growth. This is not the time to run after growth. Growth can come based on the strengths that you build in our business fundamentals. This is not the time to go for growth. This is the time to conserve your energy to build muscle and that is what we have done.
The three SPVs of IL&FS has turned green. Is this your total exposure to the troubled assets?
Two names were discussed in the last nine to twelve months. One was IL&FS and we have been coming and talking about IL&FS every quarter. You will remember that out of our Rs 1,800-crore exposure, our two projects of Rs 180 crore or so were green and the rest were amber. We are very happy to say that because of our team’s effort, working closely with IL&FS and Government of India, now five out of six projects and close to Rs 1,700 crore out of Rs 1,800 crore of total exposure is becoming green. We are hopeful that in the near future, the remaining Rs 100 crore will also become green.
If you remember, we had reversed Rs 84 crore of income in the fourth quarter. We have reinstated that income in this quarter because now everything is green and money will start flowing. The entire due on these projects of the entire lending community, almost three times that money is already sitting in the escrow account. So there is absolutely no problem in receiving that money and hence we have reinstated that income.
As opposed to that, even though I will not be able to say the name in public, a particular housing finance company which at one point of time was AAA and now rated default having defaulted in the near past, we have exposure of close to Rs 550 crore plus interest to the securities of this company.
We have conservatively taken a provision of 50% -- which is Rs 284 crore -- on this entire exposure. We believe this is a conservative view. We are closely associated with all the efforts going on either with the banks to restructure their loans or attempts going on to sell the company. We believe that eventual loss, if it happens, will be far lower than this 50% provision that we have taken. But as always, conservatively, we have taken this provision.
You have weathered difficult environment, you have put to rest a lot of concerns as well in the markets regarding this quarter but regarding IL&FS risk as well as DHFL, what do you want to tell your shareholders?
I can say the IL&FS issue is resolved and we have made provision for the housing finance company, so the quarter’s performance has to be seen from the context of how good the company is able to do in a very turbulent quarter and that shows that we have the inherent strengths to not only do well in a turbulent quarter, but even take a one-time hit and still show profits of about Rs 550 crore that we have shown.
The model we have built is a very durable and strong model and profit growth in the future will surely come once the overall industry starts turning and our growth gets even better.
Your asset quality has improved 1.6% sequentially. What has led to this improvement? Which are the segments that are overall doing better and what are the asset quality trends we can see?
I can answer it in two different segments; in housing segment, our GNPA shows pretty steady performance. In the rural segment, for the last three years, we have been showing a steady drop by doing the basic things right. Instead of concentrating on GNPA, we have concentrated on good sourcing, early defaults and making sure that our zero DPD continuously goes up.
By concentrating on early delinquency, slowly the overall GNPA comes down. It squeezes as you solve GNPA and concentrate on early delinquencies as roll forward into GNPA continuously comes down and our rural book is now in that good space.
On the wholesale side, you will see a big reduction from last year and that has happened because the entire legacy portfolio had moved to a special team about one, one and a half years back and we are seeing the results of that.
A concentrated effort on reducing this GS-3 has led to that. We are further focussing on our rural business, on our housing business and within wholesale, we will be further focussing now on only our infra business.
We are putting our structured finance and DCM books in de-focus and by seeing the success of the special team in running down de-focussed businesses, solving GS-3 etc, they will be running down this book also and we are sure that they will be able to do this without any effect on P&L.
How do you see yourself benefitting from the transfer of the three cases that is IL&FS and SPVs from Amber to green category? Can we expect provisioning write-backs in the coming quarters?
We have not made any provisions on IL&FS. We were always sure that we do not have to take any principal provisions and so we have not made any provisions. We had deferred interest in the fourth quarter of last year which we have reinstated this quarter. We expect IL&FS now to be a normal standard asset our SPVs and go on from there.
What is the type of exposure in the developer loan book and what are the asset quality trends that you see there?
Developer lending or real estate lending is not everybody’s job, it is not an easy job, even in normal circumstances. Most definitely the real estate industry has suffered and has gone through difficulties because of demonetisation, RERA, the GST issues and then finally lack of liquidity of financers to the developer industry.
So many issues have caused a severe slowdown with many projects being half completed or abandoned. Why I say it is not everybody’s job is because you need to have that right DNA to do this. There are a few companies around which have the right DNA and we, being a subsidiary of Larsen & Toubro Group, which is one of the largest construction companies and also a developer of real estate, have the right knowledge to do this.
It is very simple. Choose the right developers, the right projects and most importantly your disbursement and your monitoring of projects should be very strictly done.
You do not just give the money to a developer and then sit in your office and hope it will get back. Make sure you are on the project, make sure that the project is going well, progressing well. We are doing that. We concentrate mostly now on A and A plus category of developers.
This quarter, almost 90% of our new disbursements are for completing our own projects. Very little is for any new development. We will concentrate on completing our own projects.
The good thing about our construction funding is that we are solo funders in almost 97% of our exposure. We are not worried about somebody else not being able to fund and hence the project slowing down.