Britain’s State-owned development financial institution CDC Group will invest ₹1,000 crore for a 15 per cent stake in Indian non-banking finance company IIFL. The home-grown NBFC, which has spread out to tier III and IV towns, plans to utilise the funds to provide affordable home loans and fund small- and medium-sized enterprises.

Speaking to Bloomberg TV India , IIFL Chairman Nirmal Jain says the CDC investment is for a long term, even though the British fund house can exit before the company taps the capital market. The capital infusion will also help in reducing the cost of fund, he said. Excerpts:

Can you take us through the contours of the stake sale? How do you plan to utilise the fund?

CDC is proposing to invest about $150 million, around ₹1,000 crore. We will sell about 15 per cent equity stake to CDC. The fund will be used as a long-term capital equity fund and this disqualifies for tier-I capital. The fund will be used for sustaining growth as the NBFC business needs capital for growth.

Our key product lines have been home loans, loans against property, commercial vehicles, SME loans and gold loans. Within these, the focus for growth will be small-ticket SME loans as well as affordable housing and home loans, which also resonate with CDCs’ developmental objective.

We have more than 1,000 branches across the country. We cover tier III an IV towns. We will use these networks to grow our loan book for small home loans and SME loans.

Will CDC take the stake before the dilution or during the conversion? Is there a lock-in period for CDC, currently, in terms of how long they will continue with the ₹1,000 crore investments?

I do not think there is any lock-in period. I think the investment horizon is around 8-10 years. The conversion will take place before the IPO or before any exit event. We do not contemplate any IPO in the next 2-3 years. I think this is long-term money and their horizon is also long term.

How much does your NBFC business contribute to the group’s overall revenues? And, what are the growth areas as of now?

NBFC is a dominant part of our group today. It accounts for almost 70 per cent of our top-line and bottom-line. It has been growing steadily with high-quality book, and going forward, our thrust for growth is the home loan and MSME loan segments.

In terms of your loan book, which is currently at ₹17,070 crore at the end of FY16, what portion of the portfolio is coming from the home loan segment? What kind of growth do you envisage for home loans?

We have a 25 per cent portfolio for home loans. If the NBFC sector grows at 20-25 per cent, I think home loans can growth at 30-35 per cent. In the last one year, our home loan portfolio has been going strong.

What’s your cost of funds at present? And going ahead, by the end of FY17, to what extent can you bring it down?

Our cost of funds is around 10 per cent, which comprises subordinate bonds, debentures, long-term loans and bonds taken when interest rates were higher. But incrementally, cost of funds is much lower, closer to 9 per cent. As we go along, we would like to bring our cost of funds down further.

The CDC capital infusion will be boosting our network expansion. As equity partner and a good partner on board should give reassurance to credit-rating agencies to update the rating, and that can bring down the cost of funds further. Bringing down the cost of funds is very important for us because, if our focus for growth is on home loans, we have to be competitive vis-à-vis other housing finance companies and the market.

What is the average ticket-size of your home loans? Which geographies are you dominant in and which geographies would you like to expand to in the future?

We are spread all over the country. We have more than 1,000 branches across the country. Our average ticket-size is around ₹25 lakh now.

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