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LIC Housing Finance Ltd
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Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Q2 FY '19 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, [Sinpad]. Good morning, everybody, and welcome to this earnings call of LIC Housing Finance. We have with us Mr. Vinay Sah, MD and CEO; and Mr. Sudipto Sil, our Deputy CFO to discuss the quarterly results. I would request Mr. Sah to take us through the key highlights of the quarter post which will open up the floor for Q&A. Over to you, sir.
Good morning, and welcome to the post-earnings con call of LIC Housing Finance. As you would be knowing, LICHFL has declared its Q2 FY '19 results yesterday. The key highlights of the results are as follows: revenue from operations INR 4,198 crore as against INR 3,751 crores for the corresponding quarter of the last -- previous year, a growth of 12%. Outstanding loan portfolio at INR 175,953 crores against INR 151,417 crores as on 30 September '17 reflecting a growth of 16.2%. Individual loan portfolio at INR 165,102 crores as against INR 145,486 crores, up by INR 13.5 crores (sic) [13.5% ]. Disbursements at INR 14,272 crores as against INR 10,975 crores for the same period in the previous year, a growth of 30%.Net interest income at INR 1,012 crores as against INR 963 crores, up 5%. Net interest margins at 2.35% as against 2.58% for the same period last year and 2.34% for Q1 FY '19.Profit after tax for the quarter stood at INR 573.16 crores as against INR 513.8 crores, a growth of 12%. All figures have been stated in accordance with the Indian Accounting Standards, and previous year's figures have also been recast for competitive purposes.Pursuant to the introduction of Indian Accounting Standards, the asset classification is now classified as Stage 1, Stage 2 and Stage 3 exposure at default. Companies are required to report ECL, that is expected credit loss on their loan assets and provisions thereon. Accordingly, the provisions for ECL for the current quarter stand at INR 218 crores against INR 225 crores for the same period in the previous year.In terms of the total provisions, the company has retained the book provisions that are already existing on the books as per the earlier provision loans at the beginning of the year, while arriving at the ECL provisions for the current year. This has resulted in a much higher provisioning cover as compared to June 2018.On the business front, we have disbursed INR 14,272 crores as compared to INR 10,975 crores, a growth of 30%. Overall, we have seen a good growth from some locations in central, eastern and some part of northern and southeastern regions. In the previous quarter, we had indicated about a strong pipeline of sanctions, especially in project loans, some of which have translated into the disbursements in the quarter under review.On the affordable housing front, under PMAY CLSS schemes, the company continues to do quite well. During the second quarter, the company recorded a disbursement of more than 7,600 accounts in this segment as against about 3,400 accounts for the corresponding period of the previous year. In value terms, the disbursements in this segment was INR 1,518 crores as against INR 249 crores for the previous corresponding quarter last year. As a share of incremental disbursements in the retail segment, this works out to 16% in number terms and 13.5% in value terms. In terms of asset quality, as mentioned earlier, in-line with the NDS, the company has transitioned to the ECL model based on exposure at default, the loss provisions are in-line with the historical loss rates of the company, which is one of the lowest in the downstream. As a result, the provisions have reduced on a year-on-year basis to INR 218 crores in Q2 FY '19 against you INR 225 crores in Q2 FY '18.In terms of GNPA, as per the earlier NHB norms, the asset quality has remained stable with the GNPAs at 1.20% as against 1.21% of June 2018. The GNPA in the individual loan segment too remained at 0.81% similar to the June '18 numbers. The past few weeks, there has been an unprecedented situation in the system, and I think out of 8 liquidity conditions. However, we have raised funds through market instruments like NCDs and CPs and also through bank lines during this period.;On the cost of funds side, though there has been a sharp increase in the interest rates, our weighted average cost of fund remained stable at 8.30% as against 8.29% over last quarter, that is June 2018. During the quarter under review, the overall spreads have shown a sequential improvement by about 4- basis points between June and September 2018. The rate hike cycle has required the company to also review its PLR. During the quarter, the company hiked its PLR by 30- basis points making it a total of 60- basis points PLR hike during the current financial year. With this brief introduction, I would like to invite you for your queries.
[Operator Instructions] The first question is from the line of Digant Haria from Antique Stockbroking.
Sir, my question is that our individual home loan growth still remains in single digits, which is around 9%, and the growth in LAP and developer portfolio is again in excess of 30%, 40%, and which is why the proportion of home loans continued to decline. So now, whatever happened in the last 30 days, is a lot of these PSU banks have been purchasing pools from some of the housing finance companies. So do you think that their aggression will slow down in the market which we operate in? We should be able to do better home loan growth in times to come?
Yes, that's one prediction. Our LAP and other portfolio is currently growing at around 15%, 16% and as you said, retail is growing at around 9%, but we have been focusing and refocusing on larger volumes through individual loan segment also. Regarding the other question that you asked of smaller companies selling the existing, the banks -- actually, I don't see much of such transactions happening. It wasn't new that this is happening, but from the information that I have, not much of such transfers have happened. Going ahead, I see that probably the demand side will continue to do strong in the coming times. So we have to, yes, we have to improve upon our core segments, disbursements.
Okay, okay, sir. And in terms of our margins, last quarter, we said that most of the repricing over and maybe we might expect a little bit of margin improvement. So I understand that this is not a quarter to even ask for margin improvement or something like that, but just if you can give some idea on when our margins should stabilize. Or maybe at what point can we start seeing some bit of uptick also.
Digant, if I can say that, looking forward what I said in my previous con call, we have improved by 1 basis point, if we take it as improvement, number one. Number two, see then, let's take hikes on PLR. Two happened in Q1, the effect of which actually came in Q2 and subsequently, we have done one in August. And the second one, again, we did on the 1st of October. So these 2 hikes will have an effect on Q3, because the date of applicability is usually once we announce it in the middle of a quarter, it is from the first day of the next quarter, as per our norms. So a total now, total 60- basis points hike that we have done, will have full effect in Q3.
[Operator Instructions] The next question is from the line of Nalin Shah from NVS Brokerage.
My question is that in the light of the recent stress on NBFC companies and even the housing finance companies, will you foresee any excellent opportunity for growing through inorganic growth and acquisitions possibilities?
Yes, the possibilities are there and provided the deal is good, I can share with you that in the past also we have been evaluating some of such deals. Say, in the last 6 months or 8 months, the valuations have been on the higher side so we have not gone in for it. So the valuations are okay, we are open to it. And in fact, we do evaluate time and again.
The next question is from the line of Kunal Shah from Edelweiss Securities.
So, firstly, on the developer loan portfolio.
Excuse me, this is operator. Mr. Shah, may we request you to use the handset, please?
Yes. Yes. So is it clear now?
Yes. A little better,.
Yes. So with respect to the developer disbursements, last time also you highlighted that now the pipeline is closed, but given the current scenario, maybe disbursing that INR 3,000-odd crores, so can you give some color in terms of what is the profile of these developers? And what would have been the rejection rate, maybe earlier if the pipeline was similar, maybe how was the rejection rate post this entire situation in terms of not accepting the proposals given the weaker sentiments which are there?
I would put 2 points to your question. Number one is, see, processing the developer loan, it takes a lot of time. It's something which will happen but will even not happen in 1 week or 15 days’ time. So, I mean, we told this has happened, but everything has not happened in September. Everything has not happened in the last 15 days of September. This is one part of it. Number two, current year, we have rejected proposals, builder loan proposals to the tune of about INR 3,000 crores. For last year, we have rejected about INR 3,000 crores of builder loan proposals. And these builders, we have our own rating system of builders. We seldom give loans to builders who do not fall under A category as per our rating criteria.
Okay. And in terms of the number of accounts, which would have gone disbursed, so if you look at these INR 3,000 crores, how well distributed it would be and what would be the size of the largest account if we have a look at it?
Number of accounts would be in the range of 30 -- slightly in excess of 30, I think, it is 33, 34, something like that. And amount wise, I would not like -- I mean, highest amount, I would not like to share.
Okay. And just in terms of...
It's not -- I can share with you, it's not in 4 figures and it's not in the very high 3 figures also.
Okay, okay. And in terms of this increase in the coverage, so maybe now getting almost like 52-odd percent under the Stage 3 as LGD. So how should -- well, maybe in Q1, it was definitely not there, we have increased it in Q2, so you said that not pipeline, might be existing provisioning. But why the reason, particularly why it was not done in Q1 and now it is done in Q2? And is that largely to do with the weaker real estate sentiments wherein we have now gone and increased this LGD?
Well, Kunal, actually, this is Sudipto here. See the reason that we have done it is, if you're collecting the Q1, we had shared that before, this is the ECL amount that is something we are still trying to develop and obviously, it is a sea change from the existing provisioning norms of the National Housing Bank therein. So what has actually happened is that there was some provision, which is already there on the book. Instead of writing it back, we have just transferred it to the ECL. And from the ECL, whatever is required, that also we have done. So overall, it has led to us overall higher provisioning coverage on your entire book to the tune of about 73%. And which is, by and large, the kind of provisioning that we had always been covering for the last several years. So that is, by and large -- there is nothing specifically related to a particular stage or so.
No, because when we compare it with the other HFCs under the Stage 3, the LGD is much lower, okay? In fact, for us it is -- even it's a secure product completely and still LGDs are in the range of 50% plus. And I don't think any of the housing finance companies we have discussed, everyone is in the range of, say, 25%, 30% or even below that.
That is just an extra provisioning, which has been kept there. There is nothing more to read into it. It's only an extra provisioning cover that we left there as it is. There is nothing more to be analyzed there in that number. It is just an extra buffer which we have kept, because there was a small debt from the existing provision and there had to be somewhere to put it because now the NHB provisioning cannot be kept in the books.
Yes, yes. So this release was also this quarter an NHB one?
Yes. It was done because this is the September half-year is when we published the balance sheet so it has been done this time.
Okay. And one last question in terms of the tax rate. So again, for the first half, the tax rate is quite low compared to last 3 years. So where do we see it setting? So would it be like the marginal -- maximum marginal rate towards the end of the fiscal? Or it will settle some 30% for the -- annual maybe for FY '19?
Well, actually, there will be, I think, slight remission, but by and large, it will be towards the maximum margin rate only.
So they'll [indiscernible]
In fact, this is only because of that and impact is before the deferred tax treatment under the interest, which is different from what we have been doing earlier. That is the only difference.
Okay. That's the only difference?
That's the only difference.
The next question is from the line of Piran Engineer from Motilal Oswal.
If you could just talk about some of your top builder exposures, what would be the corresponding quantum in your INR 10,000 crores build up bookings?
There are some names I would not like to take at this point of time.
Okay. But do we have exposure to any of the names like Supertech, Vatika, et cetera?
No, no, that we can't answer.
And do you have anything to ILFS, by any chance, bearing subsidiaries, anything?
No, no, no. ILFS, Supertech, we have no other exposure.
Are bulk of our builder loan exposure in Mumbai and the western region or is it geographically well-spread out?
Spread out, but yes, you can roughly say maybe 40% will be Western India including Mumbai.
Okay, okay. And did you buy out any builder loans this quarter?
No, no. By odd means, no, but maybe in some of the builder loans, there would be some take over amount, but buying out...
But that would be how much, roughly?
That depends on the proposals, actually.
Okay, okay. And if you could just explain this provision thing once again, I didn't quite come back here. So last quarter...?
Piran, let me explain to you. ECL, the expected credit loss model, pursuant to the INDAS was introduced first in the quarter June 2018, for the first time we prepared accounts in accordance with that. At that point in time, we had created the provision exactly according to the ECL. Whatever provisions were aligned, if you recollect our con call of post first quarter we have said, whatever created in accordance with NHB that has not been treated, and that we will be treating in the half-year when the accounts will be -- the balance sheets will be published. So whatever provision was lying as per the earlier NHB provisioning norms. As of 1st of April or 31st of March, that has been retained in our book with exactly that amount. Additionally, whatever is required for provisioning under the ECL, that has been done. So that is the reason why you are still -- the coverage ratio has increased significantly.
Okay. So, in fact, if get it in the first quarter, we had about INR 900 crores of provisions that did not include, let's call it, contingency provision for 4Q?
No, if you now look at it at end of the month, we had about INR 1,300 crores or INR 1,200 crores of provisioning on the books.
Correct.
But this was only INR 900 crores. So additional INR 300 crores was what was added back to the provisioning this time. And along with it, the INR 200 crores incrementally that we had taken out from the P&L.
Okay, okay. Understood, understood. So our net worth reconciliation then would only include the DPL impact. There is no provision....
The provisioning is not very -- the provisioning impact was not taken even in the earlier quarter.
No, I get that. Yes, but some HFCs have reversed their floating provision [debt] [indiscernible] net worth?
[indiscernible]. We have not reversed, we have actually enhanced the provisioning coverage by keeping it on the books.
Okay, understood. And sir, lastly, your PLR hike, is that on new loans or on all loans and [indiscernible]?
On all loans.
On all loans.
New, old, everything.
The next question is from the line of Kashyap Jhaveri from Emkay Global.
[indiscernible]
Excuse me, this is the operator. Mr. Jhaveri...
Am I audible?
Yes.
One question from the previous participant, when you say this -- old as well as new loans, everything is available. I'm just looking at Slide #11 in your presentation, which says 82% you have floating-rate loans. So the whole 82% is [indiscernible] ?
Yes, yes, yes.
Okay. The second question is on your developer loan portfolio, which is now at a percentage of your loans as a proportion almost now about 8-odd percent -- 6-odd percent. The previous peak that we saw was about 11% and then it gradually came down from FY '10. But during around the same time we saw a spike-up in the NPL also because of a couple of accounts now. Is this the blended rates are rising and whatever calls we attended, a lot of real estate financing and everybody is saying that probably they're going to free up the disbursement at least for the next couple, 3-odd months until they get some clarity from IB (sic) [ RBI ] in terms of liquidity and all. Do you believe that this could probably result in some of the builders liquidating their inventories at discounted price? And do you have contingent on the overall pricing of the asset in the broader sense?
No. I mean, that we can't say. But I'll answer your question from an entirely different perspective also, whether it is our HFC or any other HFC. No one will go in for or not go in for project loan knowing it is bad, no. Number two, money, if it is not available, then actually I will not give. So people are not giving to -- some of the companies are not giving to -- big loans because they don't have money. It's not that because the borrower is bad or like he could go into NPA. And then we have our very strict rules with SOPs and due diligences taken out. We would also like -- not like to enter into an arena which there is even a [indiscernible] doubt percent -- small percentage of doubt that the projects may go slip into default. And most of these, as I said before, most of these cases did not come to us in September. I don't think that even 5% or 2%, because it takes time. The processing takes quite a lot of time. So they were already there in our pipeline. So that -- and yes, as you said, we have after September, look into, especially looking to the liquidity position also overall in the market. We have -- we are taking adequate precautions and maybe become more stricter in appraising these projects. That's the only change. But we are not saying no to builder loans still.
Right. But looking at the fact -- looking at the at least -- for at least in near-term curtailment of the sector as a whole, that aversion to this kind of financing. Just to generate liquidity, could these developers probably include the pricing, could it be material going from -- because that impacts our net portfolio also eventually in terms of the collateral. So that's why I am asking this question.
We have to be -- so you need -- it can be a good opportunity also to get on board and do more. That also is one side of the story. But then as you said, yes, we are very cautious about it.
Okay. And you used to give separately interest income on individual and developers loan. I'm not able to find that in this quarter's presentation. Would we be disclosing that number?
So currently, yes, maybe we can disclose it, but currently I don't have it.
So we won't publish.
The next question is from the line of Abhijit Tibrewal from ICICI Securities.
So what are these derivative financial instruments that I see on the asset and the liability side of the balance sheet?
Sorry?
What are the derivative financial instruments that I see on the asset and liability side of our balance sheet?
Yes, that is actually -- those are outstanding -- some swaps that we had taken about some 7, 8 years back. That's it. We had not enter into any swaps post 2009.
Okay. So they're all running...
They're all running on time. They're all running.
Okay. And so in the disbursement of INR 11,324 crores in the Individual segment, can you provide a split between the home loans and LAP?
Home loans would be in the range of about INR 9,000-odd crores and that would be LAP net earning.
Okay. And what was the quantum of incremental borrowings that we did in this quarter?
That will be around say, about approximately INR 20,000 crores, INR 22,000 crores.
The next question is from the line of Abhishek Saraf from Deutsche Bank.
Yes. So I just wanted to understand...
Excuse me, this is the operator Mr. Saraf, may we request you to use the handset, please? Your voice is not audible.
Am I audible now?
Yes.
Sir, just on liquidity front, wanted to understand our cost of funding. So obviously, for quarter-on-quarter, it is more or less flat, but in this quarter, how has been our experience? And how have the cost of funding gone up? And it seems that we also, kind of, deferred one of the NCD issue, which we had recently launched and did not take it. So just a review on how do you see cost of funding panning out for yourself right now? And given that around 82%, 84% of our asset side will be repriced to the new rate, so what will be it similarly on the liability side? How much of it is repriceable in the near term? What I'm trying to understand is the overall impact on the NIM for the second half of FY '19.
So Abhishek, I'll talk on your last question first. Approximately around INR 12,000 crores of liabilities will be running off in the balance part of this financial year including from October. And that is at present carrying an average cost of around 8.6% to 8.7%, but though there are really some chances between the contractors, really it was at 9% as well. It's a mixed bag. Secondly, in terms of cost of funds, the overall cost of funds has remained by and large at levels which was there till -- as of 31 of March which is around 8.29% or 8.30%. And for Q2, incremental cost of fund has been around 8.17%. Right now, if you see the -- keeping the borrowing basket mix same, the same would have gone up by around 15- to 20- basis points. And that is roughly the amount of repricing that we have also done on the assets, though the asset repricing has happened on the entire book, whereas the increment in cost will be impacted only with the incremental borrowing.
Okay. So that definitely will be a margin cost that way. And sir, in terms of growth in -- will you -- do you think we'll be able to maintain H1 FY '19 numbers given that there will be some kind of -- if there will be some liquidity squeeze going forward? Or so -- or they will maintain the current level of growth? And within that, what kind of loan book are we looking for project loans? It has gone up at least around 6%-odd. Though I understand this is a bit -- tends to be chunky, but do we expect this ratio of the project loans to be maintained as well going forward?
It -- a lot of it depends on numbers, answering your first question first. Overall, for the year FY '19, we are still looking at full growth of over 17%, 18%, which we had budgeted at the start of the year. Composition of the book maybe goes up to 6.5%. I don't see a very exponential growth for projects looking at the current scenario.
The next question is from the line of Umang Shah from HSBC.
I just have a couple of questions. Could you please help me what's our Tier 1 ratio as of now?
The Tier 1 ratio in terms of -- as of 31st March is 13.06%.
Right.
Tier 2 is 2.43%, total is 15.49%.
Yes. But I mean during the YTD period, we have grown fairly faster in non-individual loans like developer and LAP where the risk rates would be high. So any color or ideas that you can give in terms of do we have any capital raising plans? Or our current capital position, kind of, allows us to grow at these rates at least -- I mean, for how long can we sustain these growth rates?
Yes. I think foreseeable future, we can certainly -- we don't need capital -- it is adequately capitalized, and those that have been increasing with the builder loan as you have very rightly identified, which consumes capital faster. The profit growth for the first half is in excess of 20%, so that kind of offsets. And for the retail piece, the risk-rates are in the range of around 55% to 50%.
Okay. All right, got it. Second, I just wanted a small clarification on a data point. On Slide #13 of the presentation, under Ind AS PAT reconciliation, what would be the components in other adjustments? I mean, it's a reasonably large number at INR 152 crores.
The other adjustments usually is of commission income and other things.
Okay, so basically it is amortization of the payouts that we can do on the index now?
Right, right, right.
And just the last question that I have is, just again to confirm one data point. On our first slide of the presentation, you have mentioned NPAs at 1.2% and on the other slide, it's 1.27%, it's basically the difference between gross NPA and gross Stage 3, right?
Yes, yes. Actually, it is slightly different. This 1.2% is as per the NHB. I should have included that line there as per the NHB provisioning norms. Whereas, this one is basically under the ECL norms.
Okay, okay. Fair point. And sir, just lastly, on the incremental home loans, what would be the differential in terms of rates between us and banks? So let's say, post-October, what would be home loan rates for us and banks? What would be the differential like?
Well, some of the banks, we would be lower than them and I think State Bank is 5- basis points lower than us. But otherwise, the other HFCs also -- and we are very competitive and it's not that we are giving a very low rates or very high rates that way.
But sir, going forward, do you think this differential will rise? Because obviously, our marginal cost of borrowing has gone up, so we will have to pass that on into our lending rates. So that differential might expand, right, going forward?
They will also.
Okay.
We take a call on everything. The cost to bring up what the competitors are doing. We take into consideration everything.
And taking that into consideration, 2.3% kind of margin, I mean, I'm not looking at immediate quarters, but I'm saying that one quarter down the line when the rates kind of settle down do you think this 2.2%, 2.3% kind of band is sustainable?
Yes. Certainly, I mean 2.35% is what we have delivered I think during the past 2 quarters. And if you see there has been some kind of an improvement in the spreads, though the numbers are very, very small, single-digit, but there has been sequential improvement in the spreads between March and June as well as from June to September. Secondly, the cumulative impact of the PLR hikes that we have taken till now, that is 60- basis points in the first 6 months, that will also continue towards the margin, because it is spread across 80% plus of our assets, which will be close to INR 1.5 [ lakhs ] crores of our assets.
The next question is from the line of Harshit Toshniwal from Jefferies.
A couple of questions. One on the developer book. Currently, your growth which we have seen, is it more back-ended back in maybe in the last 2 weeks of the quarter, we have done majority of the developer loans or that is well-spread across the quarters?
It's not 3 months divided by 3 sort of a thing. It's approximately, if I can say, nearly 40% of the total which is roughly INR 3,000 crores, INR 2,900 crores happened in September and certainly, not during the last days. Few [ weird ] disbursements did happen in the last week, but -- and our recent report also permitted processing and sanctioned disbursements, it's a long, drawn process, it can't happen overnight.
Okay. So we can expect this trajectory to continue, because if it is more general and obviously, this would be benefited in the going quarters when others are not that aggressive in the developer loan segment?
Yes. As I said before also, we are not closing down this portfolio. We are not -- but then yes, because of the circumstances, our due diligence has become more stricter. And the growth, yes, you said about the high growth rate, the growth rate also looks high because our base is very small.
Right. But even in previous quarters, our base was not that high. The growth in this particular quarter is exceptionally very high. And another point, sir, our previous experiences in developer loan book have not been the best, even the gross NPA asset quality improvement we have seen is more a basic fact in this quarter. So how are you ensuring the asset quality? Sir, that's why we want the nature of the developers to whom you are lending if you can throw some color on that part?
As I said, there are names I would not like to share, but...
Not names, the quality of developers?
Yes. I said we have SOP, we have our own rating system of developers wherein we rate them as A, A+ A++, B -- also some developers fall in B and C. I mean the amount that we can share with you is that B and C probably at times, we are tempted to give it a higher rate and not say no, but that is what we have stopped strictly after September. I'll say again, after September, yes, and to any builder who is below A category.
Okay. And what would be the incremental age on all -- if you can say for LAP developer and core home loan as on October so [indiscernible] as on the current date, so post all the liquidity squeeze and more about in the recent times, if we look at the incremental age, how would that be...?
On projects you want, on LAP?
On all the 3, broad range.
Broad range would be -- project would be -- project and LAP taken together would be in excess of 12%, 12.5%.
If you can separate that?
Project would be closer to 12.6% or so. LAP, other things would be in the range of 11% to 11.2%.
Okay. And core home loan?
Core home would be 9.1% or so.
9.1%, okay. And incremental cost, it was 8.3 for the quarter, and you said that it could be another 15- basis points?
It's 8.1%.
8.1%.
8.1%. And you said that 10- to 15- basis points is the incremental cost of -- the increase in the cost of funds because of the liquidity squeeze. You guided towards the 15- to 20- basis points higher cost of funds?
Yes.
So, it is safe to assume that the incremental would be around 8.3%?
It's roughly around 8.3%.
The next question is from the line of Nischint Chawathe with Kotak Securities.
If you could kind of explain as to how do we -- the PLR rate hike has passed on to customers. What is the time lag over there? And because I guess you had a hike sometime in the first quarter, so we would have expected that there would have been some benefit of that in the second quarter.
We see that in Q1, we did rate hikes twice, one for 10- basis points, the other was for 15- basis -- sorry, 20- basis points. Now as per our norms, from the deliver date of review of rate hike for the back book. That happens to be, the dates are 1 July, 1 October, 1 January. So next date gets applicable. So whatever we gave in rate hike during Q1, the benefit will start from 1st of July, irrespective of the date in the quarter.
So it should have ideally kind of start...?
So these 2 rate hikes were applicable on the back book from 1st of July. So Q2, that effect has come, Q2 we did one more and one we did starting exactly on 1st of October, so these 2 will help in Q3.
But if I look at the calculated yield, it doesn't seem to have reflected this hike. If I look at the average lending rates, it has gone up by like 2-, 3- basis points.
Yes. If you look at it, it depends upon the timing of the hikes.
That's what was mentioned, right? That you said that everything if you get a 10 plus 15, with everything got reflected from July 1, so I'm really not sure it got reflected in this quarter itself.
No, it has, actually. It has gone up. There is no delaying effect but these have gone up.
And based on your estimate, what would be the yield like in the first and second quarter?
Separately, I don't have the numbers, but just immediately, the incremental yield that we are having right now from the retailers -- retail piece, including the core as well as in the non-core that's for the home loan and non-home loan piece will be close to 9.4%. And for the builder loan, of course, that's a different product portfolio, but that is around 12.5% to 13%.
9.4% is incremental number?
Yes, yes, incremental.
After the hike?
Yes, after the hike.
Okay. Moving onto the ALM side, if you could give some color as to how you are placed over the next 6 months and for the next financial year in terms of the ALM guess?
The ALM by and large is driven by the NHB norms, which gives very strict limits on every bucket like the immediate short-term bucket up to 1 year and thereafter buckets for the more than 1 year and thereabout as defined by the board and which is reviewed on a monthly basis by National Housing Bank. So within all those limits, one has to be much more specific about, say, the bond redemptions in the next 6 months or so, as I mentioned some time back, is around INR 15,000 crores or so.
Sir, you mentioned 12 or 15?
Between -- INR 12,000 crores, right. INR 12,000 crores will be the bond redemption, then some other increments like NHB refinance, et cetera may be a couple of thousand crores like it comes to around INR 15,000 crores. Then whatever term loans that we had taken, that repayment happens plus also the term loan further drawdowns happen depending upon our requirement and the fresh lines that we have received already. And whatever CPs that we have on book that is about 9% of the total book, which is roughly around, say, INR 14,000 crores as of 30th of September. We expect that to come down substantially in the next 6 months, say, about 5% to 6% of the total book -- or total liabilities, which was the figure which was there as on 13 June 2018.
Sure. And just on the incremental cost of funds, I guess you mentioned that around second quarter, it was around 8.17%, which would go up by 15-, 20- basis points assuming that the basket of borrowing remains similar. If you want to reduce your CPs and then possibly go for a little slightly longer tenure borrowings, then how would this number kind of change?
Actually, this also takes into consideration the bank lines, undrawn lines that we have, where the rates are still in the range of between 8% to 8.3%. Of course, the NCD, depending upon the tenure and assuming that the rates stabilize around that level, we are expecting that to come down a little bit because if you look at the trend of the G-sec tenure, G-sec, it has come down well below 8%, now it is in the range of 7.8% to 7.85%. And when that market stabilize, the corresponding corporate AAA bond should be placed at -- in the range of around 8.70%. Right now it is about 30- basis point higher than those levels, around 9.1%, so 40- basis points higher, but generally, it should be trading in the range of around 8.70%. So if you look at these 2 pieces of borrowing and commercial paper, whatever 5%, 7% on the book, that today as of today's rate, it is available at 8%. And as you think that rate remains stable, it should come below 8% by a few basis points, so this is keeping in mind these 3 baskets of borrowing that we have.
The next question is from the line of Sunil Tirumalai from Crédit Suisse.
My first question is just to check on the incremental yield that was mentioned on home loan portfolio, about 9.1%. I remember from my notes on the previous call, gave the same number as 9.2%. I just wanted to cross-check, it seems like a drop. What was it for the last quarter?
Q2. Q1 was in the range of around 8.8% to 8.9%.
Okay, okay. Got it. Just coming back to the funding mix question from earlier. So having -- so your portfolio of commercial paper has kind of more than tripled in stock over the last -- since the end of the previous financial year. I mean, are you seeing this as a temporary thing? Or is this likely to stay at such a high percentage of 9% to 10% of your overall borrowing?
If you look at it, I think June, it was around 7%, if I'm not mistaken, and at the end of March, it was around 5%.
3%.
It was between 4% to 5% -- 4% or so. So it is actually -- it is right now, it is around 9%. Obviously, it is still one of the lowest and we don't have any of aspirations of that crossing 10%.
Okay, okay, okay. Understood. And finally...
And as I indicated, as I indicated, it should be largely in the range of what it was in the June quarter, which is around 6% to 7%.
And finally on the builder loan book, I mean, just in terms of share size, it is historically the largest book that you run in terms of fixed cost, INR 10,000 crores of portfolio size, quarterly disbursement is also quite high compared to what you used to do historically. There was only one quarter in March that you had more than INR 2,000 crores of disbursement. From an organizational capability perspective, I mean, how are you placed and how have you expanded your team, your underwriting capabilities, presence in various places where your borrowers are present, the projects are present. And do you do only project-specific project level loans or do you also do some balance sheet loans to the builders? This would be very helpful to get some color.
Yes, Sunil. No, one thing is, one disclaimer is that probably everything that you said, that about INR 3,000 crores doing in a quarter, I don't see that happening in all quarters [doing that also]. Number two, yes, we have had that last year also, if you'll remember, I think after Q2 or maybe Q3. After Q3, we had to relook into our SOP for project loans. Many of the parameters were discussed, revised. As regards to teams, we are saying, yes, we have fortified our teams at the regional headquarters also. And I don't think we have done much of this balance sheet funding, it's mainly on projects.
The next question is from the line of Subramanian Iyer from Morgan Stanley.
I had one data question. Can I get the absolute number of Tier 1 capital and risk-weighted assets as of March end?
Right now, we're not having it. I will give it to you. The total capital adequacy, I think, we have already gotten.
Sure. And also, just laboring a bit more on the incremental cost of funds. So even if I were to take a best case 8.7% for NCDs and assuming that it had about 70% of our incremental borrowings.
Well, that is going forward. Right now, the levels are much higher than 8.7% I clarified on the call.
Sure, exactly. Sir, that was my point, that even if I take that to be about 70% and I take it as 8.7% and take CPs to be about 10% of our incremental borrowings and the rest at about 8.5%, I really struggle to get to an incremental cost of funds below 8.5%. I mean -- and that's the best case. So just wanted your thoughts on that on how you get to about 8.2%, 8.25%?
That is based upon 2 things. One thing is that, at present, there are a lot of bank lines that we are using, so that is actually what is helping us to pull down the cost maybe 20- to 30- basis points improvement, 15- to 20- basis points increase on 8.17% number is what we have shared. 8.17% is the incremental cost of borrowing for the Q2, so 15- to 20- basis points on top of that.
The next question is from the line of Pranay Rajani from B&K Securities.
Sir, just want to get a few data points from your side. If you could share the net NPA number total value as well as percentage terms?
Yes, the net NPA -- the gross NPA, there is nothing like net NPAs now. It was as per the NHB norms and now it is ECL, which is there on the last slide of the presentation. But as far as the NHB norms are concerned, the GNPA is INR 1,100 crores as on 30th of September, which is 1.2%.
Can you share the provisions for the quarter, sir?
Total provisions for the quarter is INR 218 crores. Incremental provisions for the quarter is INR 218 crores.
No, sir, I mean provisions on gross NPA.
That is precisely what I'm telling you. As per the ECL, there is no provisioning on the gross NPAs, these are 2 separate things. The gross NPA is different and the provisions are being made as per the ECL. That is -- that's already there now.
Okay, okay. Can you just share the incremental yield on the total portfolio for the quarter-on-quarter?
For the -- the incremental yield is 10.24%.
10.24%. All right.
The next question is from the line of Adarsh Parasrampuria from Nomura.
Question again on incremental yields and costs. So if can you just walk us through like in the next 6 months as CP matures, broadly, the mix of funding that you would pursue and the costs as you face today in those instruments. Sir, if you can just let us know from bank funding and from bonds?
Well, the bank funding, the bank funding right now, the MCLRs are increasing by about 5-, 10- basis points so that is what we are seeing the trend in the last, say, 2 months. Generally, the MCLRs have been increasing by 1 to -- 10- to 15- basis points, but for term loan, we reset it after 1 year. So whatever term loan we are drawing today, the next revision on the rates come after a period of 12 months. So for the period of 12 months, the MCLR remains fixed so that is as far as the repricing of the bank funding is concerned. As far as the repricing on the NCDs are concerned, and I just discussed with -- in a previous question -- right now the levels are around 9.1% to 9. -- ballpark 9.1% to 9.2%, but after, say, every 6 months period of time that we have taken, we expect that our level should come down once the rates stabilize. And in the region of G-sec plus about 80- to 90- basis points, which has been the standard corporate, AAA corporate strength with [indiscernible] paper, that is a new standard spread that we have seen over the last several years. As far as commercial paper are concerned, we have seen the commercial paper rate on a 3-year at -- 3-month paper remaining by and large stable in the range of around 7.9% to 8.1%.
I was more asking in terms of not the -- just the repricing part of it, but more incrementally, right? So you will have a net growth in balance sheet, which will entail a net growth in borrowing. So I just wanted to understand yields and mortgages would be like annualized?
Yields, as we have mentioned, there has been an increase in the -- on the PLR so pursuant to that, yields on all the categories of lending have increased in the past 6 months by about 60- basis points -- roughly about 60- basis points. And currently, we have shared with you the incremental yields also on various product categories which were in the non-core segment will be around say, 11% plus. In the developer loans, we do 12.5% to 13% and in the retail segment, will be around 9.1%. That is the incremental yield.
So is it safe to say that since all the repricing on assets is coming bunched up now and liabilities will reprice as we go, maybe 1 or 2 quarters we can predict margins where we are, but as we get into '20, the incremental spreads which are under pressure at least for the core book will start reflecting. Is that a fair statement to make?
Yes. Actually if you see the last 6 months and even as far as this going quarter is concerned, the weighted average cost of fund because of the construct of liabilities that remain more or less stable in the range of 8.2% -- 8.29% to 8.3%. As we go ahead, we will see the asset repricing also happening on a larger pool of assets, whereas the liabilities, as you have correctly analyzed, will be on equal basis as long as we keep on borrowing incrementally. Now when the entire portion of the liabilities come up at a particular level, there is a possibility that we may actually see further repricing on the asset side, because we -- if we assume that the interest rate remain at these levels then there could be a possibility of further rate hikes on the asset side as well.
You're competing with banks so you may actually not see their cost of fund go up with the lag, their term deposits will reprice in 3, 6 months and then probably that will mean lower spreads for us maybe in 6 months’ time. So just wanted to understand, because it looks like you reprice everything on the assets in the next 6 months, but then they will catch up on liabilities.
Yes, as of now, if you at it, the quantum of liabilities that we are borrowing incrementally as a percentage of the total liabilities. Till such time, we have exhausted and we have completely come up to the level of full recycling of the entire liability book. Till such time, there will be some advantage.
Ladies and gentlemen, due to time constraints, we take one last question from Alpesh Mehta from Motilal Oswal Securities.
So first question, has there been any write-off during the quarter?
No, there hasn't been any write-off.
And what will be the movement of gross Stage 3 exposure in terms of addition and the reductions in recoveries, et cetera?
That between the 2 quarters you want to say?
Yes, between the 2 quarters, 1Q and 2Q.
Well, as on Q1, the Stage 3 was 1.21%. INR [ 5,000 ] crores.
Absolute number was INR 652 crores and this quarter...
No, no, no, that is the provision.
That is the provision, sorry, sorry. Yes, but is the [indiscernible].
You want the year-to-year.
Yes, yes, yes.
Year-to-year is 1.21%
Yes. So this is the final number, but in terms of the addition and the reduction during the quarter, has there been anything added in the portfolio during the quarter?
Number of additions during the -- it would be around INR 300-odd crores.
Okay. And...?
And movement out would be around, say, INR 200 crores to INR 205 crores and [indiscernible] also during the period.
And this addition is largely on the individual portfolio or has there been...?
Yes, largely.
Sir, secondly, the LAP and LRD portfolio -- in the LAP portfolio, there is also mention of LRD portfolio so what will be the proportion of LRD in the...?
LRD will be INR 5,000 crores, INR 4,000 to INR 5,000 crores.
That is part of that 16%, right?
Yes, that is, yes.
It's not the part of the developer portfolio?
No, no that is part of the 16%.
Okay. And what would be the...?
As mentioned as LAP LRD [numbers].
Yes. And what would be the average ticket size on that?
Average ticket size will be around INR 40 crores to INR 50 crores.
Okay. INR 40 crores to INR 50 crores. Another question is on your net worth reconciliation. If you can just run us through what was it last year and this year and what has been the additions, et cetera, under IND AS?
Net worth reconciliation. Currently, it's INR 15,200 crores. Financial year at around INR 13,000-odd crores -- around a little more than INR 13,000 crores. So the INR 12,000 crores, INR [ 2,000 ] crores, INR 1,700 crores whatever was the incremental, about INR 1,200 crores was because of the deferred tax impact and others will be sundry items, mostly it is deferred tax income, deferred tax treatment.
That would be dividend payable during the first?
Yes, it would have been dividend payable.
So the rest is largely because of the EIR impact.
That is the EIR impact
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Yes. Thank you, all the participants, for their queries. Going ahead, 2, 3 things that I would like to again reemphasize, reiterate. As we -- for the balance period, we want to go very strongly on the home loan disbursement [site] project. We would be very selective and do it on a case-to-case basis. We are also looking into the raising of funds through other means also, though nothing has been finalized as of yet like [indiscernible] -- though nothing has been finalized as yet so that we are able to gain some basis point as far as borrowing rates are concerned. All the best to all of you, thank you very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.