Indiabulls Housing Finance has decided to buy back all non-convertible debentures maturing in July and August totalling Rs 2,285 crore. The company’s liquidity situation remains very strong as it has raised around Rs 58,000 crore since September 2018 and has a cash buffer of Rs 28,000 crore, managing director and CEO Gagan Banga said in an interview with CNBC-TV18. The company has invested Rs 11,000 crore in mutual funds.

The company has zero exposure to Dewan Housing Finance and Anil Dhirubhai Ambani group.

Edited excerpts from the interview.

Right now there is a bit of fear psychosis playing out but what is the current situation, you are saying that you are buying back the NCDs, so this is a message that liquidity may not be as much of an issue with Indiabulls, but could you give us the current situation right now?

Just to put in context, the last 8-9 months since September, the sector has been facing challenges around liquidity but what has the company done? The company has raised close to Rs 58,000 crore since September 21, 2018 to date. These are fresh monies which have come in through bank term-loans, securitisation and through bonds.

In the current quarter, the company also achieved its first international rating which is BB+ which is one notch below the sovereign and launched its first international dollar bond and raised $350 million. As we speak, in the first quarter we are the third or the fourth largest bond issuer in the country both domestic and internationally.

Over the last 10 years, we have been maintaining about 20-25 percent of our loan book as cash. So at that point in time we had around Rs 17,000 crore of cash and through this liquidity crisis, when the sector is in pain, we upped it by over Rs 10,000 crore and today we have a cash buffer of over Rs 28,000 crore.

What is the worst case scenario from some of the stressed accounts, like Radius for example? In FY19 you did Rs 3,500 crore of PAT, so in FY20 how much do you think you will be impacted?

In FY19, our PAT was Rs 4091 crore and we have been proactively taking a lot of provisions. We have also been making sure and we have been talking about it for the last two quarters that our portfolio is relatively unique, it has heart-of-town assets where liquidating some of these assets is quite possible.

One BKC transaction which got done with Blackstone last week is a testimony of the kind of assets we have. There was some rumour going out in the market that we have taken a haircut. We have received all our debt. Over and above our debt, the developer has been able to clear all regulatory dues without which the transaction could not have happened with the likes of MMRDA. And besides us, I am aware of the fact that at least three banks have additionally received Rs 100-150 crore of the transaction sale of One BKC.

Can you just give us the exact numbers, how much was the outstanding loan amount to the Radius group and how much of it has been settled now?

Around this asset, we had to receive Rs 1,650 crore ballpark, we have received all the amounts which were due against this asset up to the last principal and interest.

With the rest of the NBFC universe, the concern is on the liability side. I think for Indiabulls, because of what is happening there are certain concerns on the asset side and I am not talking about your housing finance portfolio, I am talking about your exposure to developers, Radius is one example. It will really help if you give us a handle of the total developer exposure that you have and within that estimation, if you think there is stress building up in 20-30 percent of that, how is the developer portfolio looking?

The best way to crystalise this is as to what is management’s guidance in terms of what would credit costs look like this year. We have done pretty deep scrub over the last three quarters as to what the credit costs would look like. They would be in similar handle of 70-100 basis points, which is something that we have been running around for four years. There is enough profitability in the company to be able to carry those kind of provisions and I would like to reiterate, I don’t see any major loss in profitability of any sort. The first quarter earnings are around the corner and we will notice that the credit provisioning line is pretty controlled. So I am not expecting any sort of profitability loss on account of provisions which are required.

What is additionally to be appreciated is that of the Rs 9,000-10,000 crore in that handle, the construction finance portfolio that we have, we also have about Rs 3,000 crore plus of profit sitting in our OakNorth investment and those profits are for real. Softbank just invested in that transaction and I know for a fact that they are keen to invest a lot more. Now that Rs 3000 crore has not yet even flown through the P&L, so that is the kind of support that we have sitting outside of the profitability.

The third point which is a little technical but worth mentioning is that amongst all of our peers – larger and smaller -- our pre-provisioning operating profit are about three times those of our peers to cover our construction finance portfolio. So that is the earning strength to be able to take care of whatever happens in the construction finance book.

What is the total exposure that you have to the Radius group? You told us about the One BKC project. What is the total exposure to the SuperTech group and how much of this is under-construction projects, if you can give us the exact numbers?

Most of the exposure to the Radius group has already been dealt with. With the One BKC transaction and to the SuperTech group, if you read through our Q3 and Q4 earnings, those accounts have been classified as NPA and have been fully provided for. So whatever happens out of the SuperTech group, and these are live assets and projects which are running, it is only going to be accretive to the profit and loss and not going to be any additional cost which is going to be coming in. Therefore, as we speak, SuperTech is 100 percent provided.

What has been Indiabull’s dealings with the Yes Bank, DHFL or their promoters? If you could give us some information because that is a bit of a perception issue because Dewan Housing Finance Corporation and Yes Bank are going through so much stress, Indiabulls Housing is also going through that much stress?

I will answer your question but before that I would like to go back to 2016 when we had made an investment in OakNorth Bank of $100 million at an enterprise value of $250 million. The stock had collapsed that day by over 20 percent and all kinds of theories had happened. Now two-and-a-half years later we have received back our $100 million. We still own around 16 percent of the bank. So there would be naysayers and critics who would always be out there and as an entrepreneurial organisation our only defence is that to thwart the efforts of such naysayers. We will make sure that we are extremely liquid. Today as we speak we have between 25 percent and 30 percent of our loan book as cash and we will continue to maintain it and will continue to develop.

As far as Yes Bank and the other names that you spoke about, the Yes Bank CEO has said that they have also faced these questions, all kinds of scrutiny has happened and there is no merit in these arguments.

Indiabulls Housing Finance has a term loan borrowing programme of close to about Rs 50,000 crore. Yes Bank’s total contribution in that programme is Rs 350 crore. So that’s the kind of interaction that we are talking about.

We have never ever done business with Dewan Housing Finance Corporation (DHFL). We have, as we speak, zero exposure to the Anil Dhirubhai Ambani Group. Whatever loans they had taken in the past, they have repaid all of those loans with full interest and principal. So, I hope this matter is now buried and put to rest.

What is happening with respect to the Lakshmi Vilas Bank merger and the eventual move towards banking? What are the discussions with the Reserve Bank of India? We have seen the deal with Embassy Group on the real estate business. How much more is going to be sold by promoters and what happens on the LVB merger?

When we announced that merger we internally knew that all kinds of naysayers would step in. We formally submitted our applications around May 6-7 to the Reserve Bank of India. It’s a sensitive regulatory process. It is also a time consuming process. At the time of making the announcement when the two boards had approved the transaction we had indicated that towards Q2 of the current fiscal is when we hope to get more clarity and those timelines remain unchanged.

It is our endeavour to make sure that whatever are the possible hindrances as far as the bank merger process is concerned, we make sure that those hindrances are removed. We do appreciate that for a large financial services business and more so for a bank to be sitting with a real estate company. There comes a size where you cannot do that and the promoter has very gracefully decided to exit the real estate business. We have had a strong partner as Blackstone. We have now found a strong partner in Embassy. Embassy has acquired close to about 14-15 percent of the stake subject to various regulatory approvals which are relevant because this is a listed company and other related regulatory approvals such as Competition Commission etc., we hope to conclude this transaction in the first half of the next quarter. So sometime around end of July is when the rest of the transaction will be concluded.

Indiabulls Real Estate’s promoter Sameer Gehlaut would get depromoterised and Embassy would step in as a promoter subject to regulatory approvals, sometime during end of July early August. Sameer, as a virtue of this and as a virtue of all the investments that he has made and the dividends that he has received, has earned close to about Rs 3,700 crore just by the first leg of this transaction and the dividends. As a consequence he has removed all the debt that he has. So as we speak the promoter has no debt whatsoever in his personal capacity and as a result over the last 4-5 days you would have read that all pledged which were there of various group companies, all those shares have also been de-pledged. He further has close to about Rs 2,000 crore of cash which will get invested and has been invested in various Indiabulls companies.

I need to come back to builder book stress because the situation is dire there. You are refusing to tell us what the exposure to SuperTech is but SuperTech’s credit rating has been downgraded to default. So you will understand where investor concern comes from. Can you tell us whether it is true that you have about Rs 500 crore of exposure to SuperTech and do you have any exposure to names like Lodha; the Lodha Group itself has about Rs 18,000 crore of outstanding loans? Is any of that with Indiabulls? What about the Omkar Group. What kind of an exposure do you have there?

I did not say that I will not divulge details. I said that as far as standard assets are concerned, it is best not to go there. SuperTech is a non-performing asset. The non-performing asset is, if my memory serves me right, in the handle of between Rs 650 and Rs 700 crore. All of that Rs 650 to Rs 700 crore stand fully provided for. There is not Re 1 of loan to the SuperTech Group from Indiabulls which is not provided for. However, from what I understand in this particular quarter, we would have actually received Rs15-20 crore through those sales. So those Rs 15-20 crore would go back and be profit accretive. So there is no further drain which is required as far as SuperTech Group is concerned. We have zero exposure to Lodha Group. So the quality of assets, the kind of prudence that we have demonstrated as far as the real estate book is concerned, we provided well ahead of time.

We had also, well ahead of time, provided for Palais Royale for example and today we are at that stage where we have made several efforts. Some of those efforts have been successful and at least legally we have been able to get it to a point where the asset can get auctioned and I am pretty optimistic that over the next month or so the Rs 700 crore-odd would also be received back by the company through auction process. So that’s another buffer that we have created. So, Rs 3,000 crore OakNorth, Rs 700 crore of Palais Royale, 100 percent provisions on SuperTech. We have Rs 4,000-5,000 crore lying there to come in to cover up. At this point in time I am pretty sure that our regular P&L can comfortably provide for whatever is required this year.

Any plan to monetise OakNorth stake? You were talking about the buffer but to keep it handy. Is there likely to be any deal on that?

We have been engaged with these new large investors which have come in; both GIC and Softbank are extremely large investors and there are a couple of other investors sitting out there. We will keep our options open. We have already received our initial investment back and Rs 60 crore more and all of this is profit. So the profit percentage is abnormally high and therefore, it is an option that we will continue to explore.

Are you exploring that right now actively?

We are not actively exploring it but we are definitely keeping our options open.

I am going to go back to a question I asked you a couple of minutes back. Just to try and get the numbers. You have already given us certain individual details, can you give us the size of the total construction finance book right now and from what you said I believe that whatever has gone bad has been adequately provided for and you have enough buffers there but from the total construction finance book, some guidance, what percentage of that perhaps could slip into stress?

From the construction finance book, as I said we would be running with the credit costs of approximately one percent. A large part of those credit costs comes in the form of provisions that we have to do because some of these projects for one reason or the other get stuck. So for the current year, a large part of the one percent credit costs that I am talking about would continue to go towards the construction finance book itself.

The one percent credit cost ranging between 70 basis points (bps) and 100 bps has been something we have been also creating in the past. We were creating additional buffers in the past. So this one percent provision is something that the P&L can easily absorb. So I do not see any volatility coming in our profit after tax reported number, because of any stress in any part of the book, be it construction finance or any other part of the book, that book is extremely well collateralised.

The equity that would be required to support the construction finance book can easily get released by liquidation either partially or fully of the LRD building. So structurally speaking, this book is extremely superior. What we have done as a disclosure in Q3 is that we have listed down all of the LRD assets and on these LRD assets, you would appreciate that there is a lot of equity, which is out there to support anything that can potentially go wrong.

Do you want to give us any kind of guidance on the gross non-performing assets front, if you look at what you have done recently, you are still sitting at sub one percent but with the way things are going, there is quite a bit of builders’ stress as we all know, do you get a sense that at least in FY20, there could be some worsening of asset quality and if yes, to what extent?

I would imagine that our gross NPLs will be in the range of 0.88 to 1.2 percent. That is the kind of rates that we expect through the course of the current fiscal.

On growth in the cost of money itself – now that we have discussed asset quality and the liability profile in detail, Q4 was a go-slow quarter perhaps because you were looking at a lot of these liquidity issues. This year in terms of growing the book itself, is that something that is going to come back on track and you have managed spreads very well even in Q4. Now with interest rates coming down from the RBI, generally how is cost of money looking like for Indiabulls Housing Finance?

The cost of money has started declining and banks themselves have marginally started deducing MCLR, so generally speaking cost of money is going to come down, margins continue to remain pretty healthy. We do continue preparation knowing that in due course of time, there would be a merger with a bank. We continue to run down our commercial real estate (CRE) exposure and that is the other big theme that we are following and within that these are relatively chunkier loans.

So my sense is that as far as the first half of the year is concerned, we would not see appreciable balance sheet growth or loan AUM growth because we are continuing to get a fairly healthy amount of prepayments from some of our CRE exposures. This quarter itself we would have received prepayments from CRE already as we speak to the tune of about Rs 3,000-4,000 crore and that is only going to go up. For the full year, we had guided that we should be looking at mid-teen to high-teen kind of growth and we are quite confident that for the full year, we would get to a mid-teen to high-teen kind of a growth.

While the PIL has been withdrawn and the intention was clearly mala fide behind that, some of the concerns in those PIL are still bothering investors. Has there been any government agency which has asked any questions?

As far as the PIL and all of this nonsense that we have been going through is perhaps a consequence of the fact that we are doing all this effort around a bank and I continue to believe that it is an outcome of that. The PIL, the man keeps writing and keeps withdrawing, so all of this has gone on and will perhaps continue to go on. As the suffering party, all we could do is to contact law enforcement agencies and be transparent about whatever was going on. We have gone ahead and contacted the law enforcement agencies, they have already arrested one person and there are quite a few hectic developments, the results of which you will see over the course of the next few days.

Coming to the actual moot point as to whatever has been alleged, what is perhaps not appreciated in the report is that Indiabulls group is not just a standalone financial services company. It is a conglomerate, it has a large real estate development company, which we are getting out of, but over the last 12 years we have had large real estate development business also. DLF for example as a partner, which is also one of the largest and perhaps the number one real estate development company in the country has been a partner of Indiabulls Real Estate since 2006 and has also been borrower of Indiabulls Housing for the last nine years, now that does not mean that there is any quid-pro-quo.

So as we speak, I would like to put on record the following:

1) That our promoter today has no borrowings from any bank or any company whatsoever in India. So the total borrowings of our promoter today as we speak is zero.

2) I have already made the point that our exposure to ADAG group which has been referred to in that report is zero.

3) DLF continues to be a great credit for us but DLF has no loans or any investments to any promoter companies as we speak.

4) Whatever loans are being spoken about from Indiabulls Housing to these real estate companies, all of those loans are current, paid to the last due be it of principal and interest. And our promoter as I said has no borrowings whatsoever.

Now somebody can continue to sensationalise stuff. Whenever the organisation is trying to make a progressive step, I was mentioning at the time of Oak North also similar allegations came that the founder is trying to take out money and so on through this route and making an investment in a bank. Now bank is the most regulated business. Bank of England after 150 years had given five licences, if that is a route to take money for a person who in the last few years has earned from stake sale and dividends as much as Rs 3,700 crore, it is quite an outrageous thing to be taken.

There is no regulatory agency which has yet gotten in touch with me. We welcome anybody to come and ask us any question on this report, we have our answers ready and we shall be more than happy to share all the facts. The facts can be compiled and understood in less than five minutes.