Dear Shareholders and Friends,
It gives me great pleasure in sharing that your Company notched up many key achievements during the year gone by in our quest to build a gold-standard mortgage lending business. The macro-economic environment for affordable housing has never been better. Government agencies, in concerted action with sectoral regulators, unveiled a slew of measures to achieve the mission of ‘Housing for all by 2022’. The fillip came from this year’s budget, which offered lucrative tax and interest concessions for the affordable housing segment, as a result of which it is expected to grow at 25%.
IBHFL’s long-term credit rating was upgraded to the highest ‘AAA’ by ICRA, the Indian arm of the leading international rating agency Moody’s. IBHFL is now one among a handful of Indian companies that enjoy the highest AAA credit rating on its standalone strength without sovereign support or support of a larger parent or promoter group.
During the course of the year, the Company’s balance sheet size grew past the landmark Rs.1 lakh crores to close the year at Rs.1.04 lakh crores. As we grew in size and scale, the Company’s stock got included in the bellwether Nifty 50 index, underlining investors’ trust and your Company’s consistent performance. Needless to say, we shall not rest on these laurels but redouble our efforts to vindicate the trust reposed in the Company.
Macroeconomic scenario and housing sector
India is set to overtake China as the world’s most populous nation by 2021. By then, the country will be home to more than one of every six persons in the world. This fast growing population brings with it many socio-economic challenges, not the least of which is housing.
The housing sector, and the larger real estate sector, has a significant growth multiplier effect on the economy as it generates a high level of direct employment and stimulates demand in over 250 ancillary industries. Through its mission of ‘Housing for all by 2022’, the government has aligned policies and fiscal incentives to promote the housing industry. Last year, the Prime Minister meaningfully expanded the coverage of interest rate subsidies under the Credit Linked Subsidy Scheme (CLSS) of the Pradhan Mantri Awas Yojana (PMAY) to mid-income housing. Now, households with an annual income of up to Rs.18 lakhs are eligible for an upfront subsidy of up to Rs.2.3 lakhs. Factoring in tax deduction against home loan repayments, which was increased last year to Rs.4 lakhs, the effective interest rate for a home loan availed to purchase an average mid-income bracket house of is now at near-zero levels. For the first time in the country’s history, the effective home loan rate is vastly lower than the rental yield and there has never been a more compelling case for purchase as against renting.
Increased supply of houses at affordable price points is crucial to increase house ownership. This year, the government clarified and eased the eligibility criteria for availing of 100% corporate tax exemption for construction of affordable housing, which was first announced in the budget of 2016. This multiplies the margins for developers from mid-income affordable housing and this segment has now begun attracting considerable interest from large, established and organised developers. The tax exemption will help bring down costs for end-customers, significantly enhancing affordability.
Affordable housing has been granted infrastructure status enabling housing financiers to raise monies as External Commercial Borrowing (ECB) up to USD 750 Mn under the automatic route. Both SEBI and IRDA increased the investment limits for mutual funds and insurance companies for investments in highly rated housing finance companies like IBHFL. RBI slashed risk weights for lending to AAA rated HFCs to 20% from 100%, reducing the capital that banks are required to allocate for lending to HFCs, enabling lending rates to drop.
Tangible and concerted efforts by government agencies and various sectoral regulators have ensured that the macros for the housing sectors and housing finance sector have never been better. Your Company, with its right business model, product proposition, systems and operating framework, is ideally poised to make use of this opportunity and deliver superior returns to its shareholders.
Your Company has turned in an excellent performance this year and has clocked healthy growth on all key financial parameters. The Company’s balance sheet grew by 37.0% to Rs.1 ,03,705 crores for the financial year ended March 31, 2017 as against Rs.75,720 crores for the previous year. The Company reported a 26.8% increase in total revenue at Rs.11,702 crores for the financial year ended March 31, 2017 as against Rs.9,226 crores for the previous year. Profit after tax (PAT) for the year ended March 31, 2017 has increased to Rs.2,906 crores from Rs.2,345 crores, an increase of 24.0% over the last year. Outstanding loans under management grew by 32.9% to Rs.91,301 crores from Rs.68,683 crores a year earlier. The net interest income (NII) has grown by 25.4% to Rs.4,768 crores. Return on equity (RoE) works out to 26% with earnings per share (EPS) of Rs.68.80 (Rs.59.84 previous year).
With a CRAR of 20.97%, we are one of the best capitalised housing finance companies. With accruing profits, your Company ended with a consolidated net worth of Rs.12,055 crores this fiscal year. Our rating upgrade to AAA by ICRA, along with comfortable liquidity and healthy capitalisation, has further enhanced our fund raising capabilities. During the year, we raised over Rs.48,048 crores through debentures and securities, up from Rs.26,187 crores in March 2016. Among its lenders, the Company now counts 375 strong relationships: 26 PSU banks, 20 private and foreign banks and 329 mutual funds, provident funds, pension funds, insurance companies and others.
An important risk mitigation strategy is the healthy level of liquidity that we maintain. Cash and bank balances and current investment of the Company added up to over Rs.18,500 crores at the end of FY 17.
Focus on home loans and expanding scale has helped our Company continually bring down cost-to-income ratio, which is down to 13.3% in FY 2016-17 from 14.3% in FY 201516 and 16.4% in FY 2014- 15. As the proportion of home loans within the total loan assets increases, cost-to-income ratio shall continue to decline. NPAs continue to remain within the target range. Our Gross NPA and Net NPA stood at 0.85% and 0.36% respectively at the end of FY 17. The total provision pool, including floating and standard asset provisions, stood at Rs.1,149.1 crores as on March 31, 2017, compared to Rs.831.5 crores last year.
Our shareholders have been our steadfast allies along this fascinating journey, and in keeping with our philosophy of rewarding them for their loyalty and support, the Company, during FY 2016-17 made a dividend pay-out of Rs.27/- per equity shares (three interim dividends of Rs.9/- each, with a total outflow of Rs.1,375 crores, including Corporate Dividend Tax). This was in addition to an interim dividend of Rs.9/- per equity share, declared in the month of March, 2016, resulted an outflow of Rs.460 crores (including CDT).
The performance of our subsidiaries and associate companies was heartening, validating our key investment decisions. IBAMC, our mutual fund, crossed an AUM of Rs.10,000 crores for the first time. IBAMC now manages seven debt and three mutual fund schemes.
Our UK associate, OakNorth Bank, has turned in a stellar performance. The bank achieved cash break-even in record time, ahead of initial projections and in a considerably shorter span of time than its peer challenger banks. OakNorth Bank now has a loan book of over GBP 400 million and this is projected to cross GBP 1 billion by 2018. Validating IBHFL’s valuation, within 18 months of our investment OakNorth Bank raised equity capital at a valuation that was 50% higher
Diversifying and expanding our funding sources
Our liability franchise remains the engine fuelling our growth and continues to move from strength to strength. Our bond franchise gained further traction and at the end of FY 2016-17 debentures and securities contributed to 51% of the Company’s funding sources. The Company has diversified its borrowing sources by venturing into new markets and new instruments, further reducing its reliance on domestic bank borrowings.
During the year, the Company successfully completed its inaugural public issue of non-convertible debentures of Rs.7,000 crores. The Company also tapped the international debt capital markets by being only the second Housing Finance Company (HFC) from India to raise USD 200 million of masala bonds. The Company also raised External Commercial Borrowings (ECB) of USD 200 million and refinanced existing ECBs of USD 150 million.
Technology key to our growth
As we enter a period where technology increasingly redefines traditional business models, IBHFL is poised to leverage its first mover advantage of being one of the pioneers in the tech-space in the industry. Greater customer convenience and operational effectiveness led by the effective deployment of technology and decentralisation of work processes has been the driving force behind IBHFL’s endeavours this year. This has been enabled through partnerships with multiple third parties, both government and private, to leverage synergies with the said associations and provide a truly world-class product with seamless customer experience.
With the introduction of Indiabulls eHome Loans - India’s first completely online home loan product/platform - we have revolutionised the home loan experience in its entirety. A customer can from the comfort of his/her home or office, apply for a home loan, have all documents uploaded and receive the disbursed amount within the promised time period.
Our pioneering technology-led efforts were recognised by the industry and peers alike through awards such as ‘BFSI Digital Innovators Award by the Indian Express Group’ and ‘The Leaders Award by Zee Business and This Week Group’. The Group CIO, Mr. Nafees Ahmed was also recognised as one of India’s top 50 CIOs by the CIA Association of India.
Corporate Social Responsibility
We are conscious of our responsibility towards the environment and work towards sustainability through our Environmental Management System (EMS). We assess the environmental cost of the Company’s services and activities, and seek to reduce or eliminate negative impact, and increase their positive effects. Our EMS framework is guided by ISO 14001:2015, which specifies processes and checks to monitor and correct our impact on the environment. The certification helps us document our process from an environmental perspective and importantly, gives us a means to measure and minimize the environmental impact of our operations.
The group’s CSR arm, Indiabulls Foundation, has focused on areas like healthcare, education, art and culture, nutrition, sanitation and rural development. In healthcare, three more mobile medical vans have been added this year taking the total to 20. This project has helped diagnose and treat 765.000 patients. Cleft and palate surgeries were successfully performed on 600 underprivileged children across the country. Four free medical clinics were set up where over 119.000 patients were treated.
Indiabulls Housing Finance Limited through Indiabulls Foundation partnered with ESHA, a non-profit organisation working with the visually challenged, to provide appropriate educational tools to the visually challenged and resource deprived individuals. More than 47,000 beneficiaries were covered across the country. The Foundation also contributed 1.000 computers to tribal ashram schools, night schools and shelter homes across Maharashtra. Scholarships were offered to over 600 meritorious students to enable them to pursue higher studies. Under the Government of India’s Swachh Bharat Abhiyan, Indiabulls Housing Finance Limited through Indiabulls Foundation constructed toilets for girls at government-aided schools in Western India.
The Foundation has been actively providing nutrition supplements to 5,000 malnourished individuals every month and regularly monitors their health status, covering over 85.000 children till date. It provided round-the-clock seamless electricity from the renewable energy plant it set up to five tribal ashram schools, benefiting 3,400 tribal students every year.
Human Resources and training
As business continues to grow at a steady pace amidst greater consumer expectations, the human resource department’s responsibility of nurturing the potential of employees is also greater. With digitisation of the HR function we have made further progress towards creating an environment that fosters learning and growth.
We continue to deepen our relationship with campuses across the country to hire fresh talent. Our talent acquisition programme is also continually focussed on hiring best in class lateral talent. The HR department, along with senior employees across other departments, is invested in developing internal talent and performing employees are given enhanced job responsibilities in your fast growing Company.
For our vast sales force we now have an online learning platform built around ‘gamified’ modules to make them more involved. The HR department is also focussed on ensuring good work-life balance and the general health and well-being of employees. Towards this, IBHFL participates in many health awareness activities like ‘Get Fit Go’, heath check-ups for women employees, Puma Urban Stampede, Vasai-Virar Marathon, etc.
The Path Ahead
India is on strong economic footing and has a government at the helm that is committed to reforms. The government’s particular focus on housing and the country’s strong macroeconomic fundamentals have converged to open up a period of immense opportunity for the housing sector. IBHFL is coming off a period of consistent performance and has every component aligned to make the most of the opportunity. I am glad to have you all along on this exciting journey.
I would like to conclude by extending my heartfelt thanks to team Indiabulls, our customers, bankers, regulators and other stakeholders, without whose support all these achievements would not have been possible.
Founder and Executive Chairman