Would be conserving lot of liquidity till market returns to normalcy, says Ashwini Hooda DMD Indiabulls Housing Finance

Indiabulls Housing Finance deputy managing director Ashwini Hooda talks about the liquidity squeeze, drop in profitability and impact of cost of funds on margin during the second quarter financial result in an interview with ET. Excerpts: Your profit has slowed down compared to previous quarters. WhyThe reason largely is because of some mark to market losses. In the month end there were hardly any returns from the liquid fund that we got and some of the funds actually gave negative returns and there were some government bonds that we hold on our balance sheet and the tax free bonds which had an mark to market negative. This is more a function of little bit of volatility on the cash returns that have suppressed the profits at our end but it is very much in line with our long term projections where we have committed to our stakeholders that we will grow our profits in 20-25 per cent.How much has the cost of funds gone up and its impact on the margin?On an incremental basis the cost has gone up by 20 bps against last quarter and around 78 bps against the same year last quarter. The spreads that were 2.3 % have gone up to 3.24% as the company raised its lending rates and effect of higher borrowing costs were passed out through PLR hikes to our existing book. We have passed on rate increase of 50 bps till September to our home loans customers, 70bps to LAP customers and around 100 bps to our corporate customers. Will business take a hit due to tight liquidity condition this quarter?These are early days and its difficult to say that most of the losses were captured on the cash side so it will be more of a business function. We need to understand how liquidity really pans out in this quarter and what kind of growth the company would as a consequence reflect. Our internal understating is that the company will continue to grow around 20% so while we have grown in last 2 years tad faster 30% plus on the loan book side that grown in the interim short term period may be around 20 -25% and not close to 30% and profits also you should anticipate to be compounding at 20%.Why do you expect the loan book to grow slower than you have been growing so far? Will you have to cut down LAP and corporate loan due to liquidity condition?We would be conserving lot of liquidity or funding that we would get we would till such market returns to its normalcy we would like to keep much higher cash and hence we would be investing all these funds raised in liquidity and not all of it into the growth. Its not that loan against property and corporate loans are growing at a lower speed but home loans is growing at a faster pace and as a result their contribution to the total loans share keeps increasing. LAP and corporate loans will continue to grow in high teens while home loans will grow in 30% plus. How long will the contagion of IL&FS default on the housing finance business last?General contagion fear of which IL&FS has nothing to do with NBFCs and HFCs are there in the market. They were more of the investment consultants, raising funds to invest in equities of SPVs which were constructing or developing infrastructure projects. It has a different flavor to the business which most of the NBFCs and HFCs do. Where there is no liquidity projects on assets side, it’s a very liquid balance sheet most of the players have but there has been an contagion effect of IL&FS which MFs would like to understand each and every balance sheet more closely and some of us lender repaying part of it papers before they get confidence to start lending again. So it is very much of a contagion evaluation process and strong players like us should actually results in better performance.