Indiabulls Housing Finance (IBHF) is looking at life beyond its failed merger with Lakshmi Vilas Bank. Gagan Banga, vice-chairman and managing director, IBHF, on Friday told analysts that the financier will be retail-focused going forward and will enter into co-origination arrangement with with public sector banks. It will consider a share buyback plan to boost investor confidence in the face of the Reserve Bank of India not approving its merger with Lakshmi Vilas Bank.
“Not getting the (approval) for the merger was disappointing, but there are many silver linings… I think it is important that management make the right gestures without destabilising the company,” Banga told analysts. “We would like to conserve cash, but we are also back to growth mode… With a very steady inflow from our customers which has come in… a small investment (to buy back shares) to the extend that the board approves, will go a long way to assure our shareholders.” Banga held a conference call on Friday to address the concerns of shareholders.
The home financier has already entered into a co-origination lending arrangement with Bank of Baroda (BoB).
“A tie-up with the State Bank of India is also in process,” Banga told analysts.
Co-origination is a lending model between banks and non-banking finance companies (NBFC) introduced by the RBI. The model entails “joint contribution of credit by both lenders”, according to the central bank.
Under the co-origination model with BoB, loans originated by IBHF will be under a joint credit policy. IBHF will continue to service the loan account through the life of the loan. About 80% of the loans will be on the bank’s balance sheet and the remaining 20% will be with IBHF. The home financier and the bank will charge different rates linked their respective benchmarks, but the customer will have a single rate experience, Banga explained to analysts. “From a revenue point of view, we will have a spread on 20% of the loan. All the processing fees charged to the customer will be to our account. We will be paid origination fee…and we will also be paid an ongoing servicing fee,” Banga said.
The company will definitely do a share buy-back and continue to make healthy dividend payouts Banga added. The share buyback will lead to reduction in the cash balance of the home financier but Banga was not too concerned. Banga told analysts that IBHF’s balance sheet may see some shrinkage in the current financial year, but he expects it to be made up in the financial year 2020-2021. “Overall balance sheet will be around current levels, we don’t expect much shrinkage. I expect a balance sheet to de-grow, if at all, by around 5%” The RBI on October 9 rejected the housing financier’s proposal to merge with Lakshmi Vilas Bank.
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Source: Financial Express