LIC Housing Finance has been seeing a decline in its net interest margins over the past five quarters due to a decline in its corporate loan book. This was a strategy consciously adopted by the company, said V K Sharma, Director and Chief Executive, LICHF.
As on June 30, 2012, the share of corporate loans or loans to builders was 4.63 per cent of the total loan book, while the share of retail loans was 95.37 per cent.As against this, in the previous year, June 2011, corporate loans accounted for 7.6 per cent of total loans, while retail loans were at 92.4 per cent.
The fall in corporate loans has been on account of a decline in new proposals being launched by real estate companies owing to the slowdown in the economy. The company has also been cautious in its lending to this sector due to the risks associated with it.
"While demand for loans in the retail segment continues to be robust, the company is cautious in its lending to the developer segment. It is impacting our net interest margins," Sharma said.
However, going ahead, LICHF can expect a rise in its NIMs, said a report by Espirito Santo Securities. The lender has been consistently performing well on all operating parameters except NIM, which has been declining over the last five quarters.
"We expect the consistent performance to continue, but we now expect NIM to start improving, though not sharply, in the next couple of quarters,'' the report said.
Over the last five quarter the NIM has fallen from 3.45 per cent to 2.81 per cent mainly on the back of a declining corporate loan book, an increasing share of a low yielding fixed rate portfolio and the increased cost of funding, the report said.
However, over the next four quarters this is likely to reverse, given that around 15 per cent of the loan book will re-price over the next four quarters. "We expect the corporate loan book to rise from its current sub 5 per cent of the total loan book to around 6 per cent, where the spreads are around 600 basis points and we expect the cost of funds to remain constant despite,'' said the report.
About 65 per cent of the company's borrowing is through non-convertible debentures, while about 35 per cent is through bank loans, said Sharma.