Managing director Gagan Banga said the company has taken a conscious decision to no longer expand its balance sheet but instead earn income by originating loans for HDFC.
“We have realised that despite all the equity capital you may have or all the credit ratings you enjoy, this business is a liability management business. We made two attempts to get a deposit taking license and got hit badly when both did not happen. HDFC with its access to deposits, cheap cost of funds, simple process and integration gives us the benefit of a large franchise, scale and a robust credit appraisal process,” Banga said.
On Wednesday, Indiabulls had announced a partnership with HDFC in which it will originate and process retail home loans as per jointly formulated credit parameters and eligibility criteria. 80% of these loans will be on HDFC’s books with the rest with Indiabulls will retain 20%. The loans will be serviced by Indiabulls throughout their lifecycle.
This is a big change for the company which with Rs 1.29 lakh crore of loan book in September 2018 was the second largest housing finance company. The company’s loan book has consistently come down and now stands at Rs 70,000 crore down from about Rs 85,000 crore a year earlier.
High cost of funds and liquidity challenges after the collapse of infrastructure conglomerate IL&FS in September 2018, hit financial companies like Indiabulls hard. Economic challenges posed by the Covid 19 pandemic have compounded those problems.
Banga said the company has changed its strategy permanently. “I no longer want to build a balance sheet. I want to move from balance sheet model to an earning and compounding business model which will earn me a trail income over the life of the loan,” he Banga said.
With HDFC for example Indiabulls will earn a trail income over the lifetime of the loan. The company also has entered into a similar partnership with
for loans against property and is in talks with a private equity fund for a similar origination deal on loans to builders. About Rs 14,000 crore of its total Rs 70,000 crore loan book is to builders.
“We want to build two or three concentrated partnerships and build on them. The RBL partnership is now six months old and we are doing Rs 100 crore of loans per month. We will now be a origination and servicer of loans. Our balance sheet will not move much from the current Rs 70,000 crore,” Banga said.
The new arrangement gives Indiabulls a asset light model for business without consuming too much capital or depending on market borrowings for funds.
With the partnership with HDFC, Indiabulls hopes to target smaller towns and self employed people to source loans thus giving HDFC a larger bite of the market beyond its present target.
Banga however said that the company still very liquid with Rs 14,000 crore cash at its disposal and was able to borrow Rs 3000 crore to Rs 4000 crore from the market last quarter the highest in a single quarter this fiscal. Cost of funds are down 50 to 60 basis points in the last one year.