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Repco Home Finance Ltd.: Not much challenge for us on liquidity front, but refinancing limit hike to help all: Yashpal Gupta, Repco Home Finance

Availability of funding has not been a challenge for us. What is challenging is the cost of funding and that is

where entry of NHB will help, Yashpal Gupta, COO, Repco Home Finance, tells ET Now.

Edited excerpts:



How much would the Rs 6,000-crore hike in the refinancing limit move the needle for you?


The National Housing Bank (NHB) hiking the refinance limit does help. At least, it restores the confidence in the market. We are quite comfortable on the liquidity position because almost 85% of our borrowings are long-term borrowings by way of term loans from banks, NCDs and refinance from NHB. Only about 15% is short term and out of that 15% also, 7-8% is by way of working capital from banks. Theoretically, they get rolled over every year and so are considered as short term but we all know that for all practical purposes, they are long term.

If you look at short-term market borrowings for us, the outstanding CP limits are only about Rs 450 crore and that is not even 5% of our total borrowings. We do not see much challenge to us on the liquidity front but still NHB increasing refinance will help us.

Is this refinance opportunity a breather or should it have been hiked at least to Rs 40,000 crore?


The amount can always be increased but if you see the second data that they have released, out of Rs 24,000 crore which was the earlier limit and which is now hiked to Rs 30,000 crore, only about Rs 8,500 crore has been disbursed so far. So still there is a huge undisbursed portion and I am sure if requirement comes, they will hike but today given the circumstances I do not see that being inadequate. Rs 30,000 crore is a good beginning.

The issue is not at least for housing finance companies like us which are growing at around 15% to 18% and not at a breakneck speed of 30-40%. It is the cost of funding which is important rather than the availability of funding. Availability of funding has not been a challenge for us. What is challenging is the cost of funding and that is where NHB coming in will help.

What is the typical tenure for NHB borrowing?


It is generally ten years but though there are many schemes, we can broadly classify these into two schemes – one is subsidies scheme for rural housing finance where we do not have that much presence. Here a fixed rate loan is given at a very highly subsided rate and though the second is a 10-year loan, there is a reset at the end of three years. From the point of view of liquidity, it is 10-year loan but it is repriced every three years. Majority of our borrowing are by way of term loans from banks which have a 10-15 year repayment schedule but which get repriced every year because they are linked to one-year MCLR.

What is the rate at which NHB lends on an average?


They take into account the credit rating and the other risk profile of the HFCs. For us, the rate is about 8% to 8.5%.

There have been rumours that banks are not lending to NBFCs. Is that true?


As far as we are concerned, there is no truth in that. In a housing finance company like ours, the liquidity has to be calculated in a contractual manner that is strictly as per the documentation that you have done. The second is the behavioural aspect. We have seen a number of research reports which have said the Repco Home Finance has a huge ALM mismatch but that is on the contractual aspect. I will explain you the numbers. As on 31st March, 2018, our one-year liability maturing was Rs 3,000 crore and our one-year asset maturing were Rs 700 crore. Obviously, there is a gap of Rs 2300 crore and it does create a situation of uncertainty, but this is a contractual obligation.

As for the behavioural aspect, there are two parts; one is that out of the Rs 3,000 crore liabilities which are maturing, Rs 900 crore was working capital and they get renewed every year. They are already renewed in April and so those Rs 900 crore are actually not repaid but as per the contractual obligation, if they do not get renewed, we have to show that as an outflow. The Rs 900 crore is part of the Rs 2,300 crore, but actually that will not happen and so it comes down to Rs 1,600 crore. Out of that, while our loan profile has a 15-20 years repayment schedule, practically we are seeing that every year about 8-10% of our book, i.e. Rs 100 crore per month, gets prepaid. This of course is not taken in the contractual obligations in the cash flow, but we are getting back Rs 100 crore per month from the customers as a prepayment. If we take that Rs 1200 crore into account, then the actual gap on a behavioural aspect is down to about Rs 200-300 crore.

When we understand the business model of HFCs like ours, it is very important to understand the difference between the contractual obligations and the behavioural obligations. So far, we have not seen any pressure from the banks. In fact, in the end of the quarter of September, which just went by 8-10 days ago, there was some request from banks to utilise the limits before end of the quarter. We have not seen any challenge at all from the banks side, so far.

How do you see this crisis of confidence unfolding over the next two quarters of FY19? Would there be a new chapter in the life of NBFC businesses?


While the NBFC crisis has arisen out of IL&FS default, but at the same time, there is a knee-jerk reaction and in this day and age when billions of dollars are at stake, these type of situations may arise. This particular phase will be over by March but we cannot rule out something new arising. Already, in the previous six months, there have been issues of the trade war between China and USA, the banning of oil from Iran as well as the pressure on dollar. With the size of economy that we have and the way things are unfolding, we cannot rule out one shock after the other.

As far as this particular NBFC issue is concerned, our take on this is that while we are presenting it as a liquidity issue, it also has to be seen in the context of the business model of a particular NBFC. Though it is not appropriate to comment on other organisations, but I will take the example of IL&FS just for the purpose of explaining that while they were using the short-term funds to fund the long-term projects, those were infrastructure projects which do not have only funding mismatches. They face issues like uncertainty of completion, delay in payment by various government agencies or income not being in line with the projections or there being a delay in cash flow, shortfall in cash flow etc.

A simple HFC like us is not into builder financing at all. Even though the tenure is 15 to 20 years on paper, the repayment will happen from the customers’ personal income and has nothing to do with the house income that he is going to buy or purchase or construct.

So the risk of default is very little. In such a situation, even some degree of ALM mismatch, does not affect the business model. When the regulatory agencies and government agencies try to find a solution, they do take these things into account. They should not have to be a one-size-fits-all solution which may create unnecessary problems for the simple HFCs having simple business model like us.




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