Indiabulls Housing to cut risk, grow co-lending in new avatar

Indiabulls Housing Finance is preparing for a new life with a planned $250 million capital raise, new identity, and scaled down ambition after founder-chairman Sameer Gehlaut stepped down following a tumultuous period that threatened to sink it.

Chief executive Gagan Banga said the company which faced questions on corporate goernance will focus on higher standards of accountability, and better governance structures which include widening of investor base and restructuring of the corporate structure. It would merge its seven subsidiaries into the housing finance company making it a monoline business.

The new business model is an acknowledgment that the company would not want to face liquidity challenges at the whims of debt market investors.

“Even six months after IL&FS (defaulted on debt repayments), we thought that since we had crossed the hump and had achieved AAA rating, (we) were in a sense bullet proof,” Banga told ET in an interview. “But we realised that procyclicality around debt markets is beyond our control. In financial services, perception is everything and the perception by virtue of us being an NBFC, by virtue of us being an entrepreneurial NBFC, made us highly exposed.,”

Now with an institutional shareholder base and a fee-based business, the company hopes to mitigate many of the risks, he said.

As part of the changes, the company will launch a new brand and name in May this year. It also plans to merge its seven subsidiaries into the housing finance company to ensure a single-minded focus on mortgages for which it will seek court approvals in the first half of next fiscal. Currently, the housing finance parent also has another NBFC subsidiary called Indiabulls Commercial Credit and other units that deal in businesses like insurance advisory.

To be sure Gehlaut is still the largest shareholder with a 9.58% stake though may not be a promoter in the books of the regulator. He’s followed by Life Insurance Corp of India, which has 8.79% and a nominee director on the board. Other shareholders include Blackstone Inc and Abu Dhabi Investment Authority.Indiabulls’ shares and bonds were pummelled whent the credit markets froze after IL & FS went down in 2018. The stock price lost more than four fifths of the value and the bond yields surged with few investors willing to bet. Since then the NBFC shrank its balance sheet to Rs. 74,000 crores, from Rs. 19 lakh crores in Sept. 2018 to survive.

“Our DNA is now highly institutionalised and we are very clear that we want to stick to our business model of doing mortgage lending in an asset-light model. We expect assets under management to start growing from the first quarter of fiscal 2024 and full year profit to be higher by 5% to 10% which is now almost flat and had declined two years prior to that. My goal is that by fiscal 2026, we should be at a 14% to 15% ROE (return on equity) from about 9% now,” Banga said.

In 2021, the company decided to no longer expand its balance sheet, but earn income by originating loans for banks and other financial institutions. In this co-lending model, Indiabulls originates and processes retail home loans as per jointly formulated credit parameters and eligibility criteria, 80% of which are transferred to its partner and 20% retained with Indiabulls. The loans are serviced by Indiabulls throughout their lifecycle for which it earns a fee besides a spread on the loans that it keeps on its books. This works out to a 3% return on assets (RoAs).

Banga said out of the Rs 74,000 crore assets under management, about Rs 55,000 crore are loans on its own books. However, the company expects the ratio of loans transferred to partner banks to increase from around 30% currently to 40% next fiscal and further to 50% in the following year through March 2025. “The own book will continue to reduce at least for the next two to three quarters and should be around Rs 47,000 crore by the end of next fiscal. I think at about Rs 50,000 crore of own book, we should be comfortable,” he said.

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