Dear Shareholders and Friends
It gives me great pleasure in sharing that your Company notched up many keyachievements during the year gone by in our quest to build a gold-standard mortgagelending business. The macro-economic environment for affordable housing has never beenbetter. Government agencies in concerted action with sectoral regulators unveiled a slewof measures to achieve the mission of 'Housing for all by 2022'. The fillip came from thisyear's budget which offered lucrative tax and interest concessions for the affordablehousing 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 theIndian arm of the leading international rating agency Moody's. IBHFL is now one among ahandful of Indian companies that enjoy the highest AAA credit rating on its standalonestrength 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 landmarkRs. 1 lakh crores to close the year at Rs. 1.04 lakh crores. As we grew in size and scalethe 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 onthese 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 thenthe country will be home to more than one of every six persons in the world. This fastgrowing population brings with it many socio-economic challenges not the least of whichis housing.
The housing sector and the larger real estate sector has a significant growthmultiplier effect on the economy as it generates a high level of direct employment andstimulates demand in over 250 ancillary industries. Through its mission of 'Housing forall by 2022' the government has aligned policies and fiscal incentives to promote thehousing industry. Last year the Prime Minister meaningfully expanded the coverage ofinterest rate subsidies under the Credit Linked Subsidy Scheme (CLSS) of the PradhanMantri Awas Yojana (PMAY) to mid-income housing. Now households with an annual income ofup to Rs. 18 lakhs are eligible for an upfront subsidy of up to Rs. 2.3 lakhs. Factoringin tax deduction against home loan repayments which was increased last year to Rs. 4lakhs the effective interest rate for a home loan availed to purchase an averagemid-income bracket house of is now at near-zero levels. For the first time in thecountry's history the effective home loan rate is vastly lower than the rental yield andthere has never been a more compelling case for purchase as against renting.
Increased supply of houses at affordable price points is crucial to increase houseownership. This year the government clarified and eased the eligibility criteria foravailing of 100% corporate tax exemption for construction of affordable housing which wasfirst announced in the budget of 2016. This multiplies the margins for developers frommid-income affordable housing and this segment has now begun attracting considerableinterest from large established and organised developers. The tax exemption will helpbring down costs for end-customers significantly enhancing affordability.
Affordable housing has been granted infrastructure status enabling housing financiersto raise monies as External Commercial Borrowing (ECB) up to USD 750 Mn under theautomatic route. Both SEBI and IRDA increased the investment limits for mutual funds andinsurance 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 thecapital that banks are required to allocate for lending to HFCs enabling lending rates todrop.
Tangible and concerted efforts by government agencies and various sectoral regulatorshave ensured that the macros for the housing sectors and housing finance sector have neverbeen better. Your Company with its right business model product proposition systems andoperating framework is ideally poised to make use of this opportunity and deliversuperior returns to its shareholders.
Your Company has turned in an excellent performance this year and has clocked healthygrowth on all key financial parameters. The Company's balance sheet grew by 37.0% toRs. 1 03705 crores for the financial year ended March 31 2017 as against Rs. 75720crores for the previous year. The Company reported a 26.8% increase in total revenue atRs. 11702 crores for the financial year ended March 31 2017 as against Rs. 9226 croresfor the previous year. Profit after tax (PAT) for the year ended March 31 2017 hasincreased to Rs. 2906 crores from Rs. 2345 crores an increase of 24.0% over the lastyear. Outstanding loans under management grew by 32.9% to Rs. 91301 crores from Rs.68683 crores a year earlier. The net interest income (NII) has grown by 25.4% to Rs.4768 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. 12055crores this fiscal year. Our rating upgrade to AAA by ICRA along with comfortableliquidity and healthy capitalisation has further enhanced our fund raising capabilities.During the year we raised over Rs. 48048 crores through debentures and securities upfrom Rs. 26187 crores in March 2016. Among its lenders the Company now counts 375 strongrelationships:
26 PSU banks 20 private and foreign banks and 329 mutual funds provident fundspension funds insurance companies and others.
An important risk mitigation strategy is the healthy level of liquidity that wemaintain. Cash and bank balances and current i nv estment of the Company added up to overRs. 18500 crores at the end of FY 17.
Focus on home loans and expanding scale has helped our Company continually bring downcost-to-income ratio which is down to 13.3% in FY 2016-17 from 14.3% in FY 2015-16 and16.4% in FY 2014- 15. As the proportion of home loans within the total loan assetsincreases cost-to-income ratio shall continue to decline. NPAs continue to remain withinthe target range. Our Gross NPA and Net NPA stood at 0.85% and 0.36% respectively attheend of FY 17.The totalp rovision pool including floating and standard asset provisionsstood at Rs. 1149.1 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 inkeeping with our philosophy of rewarding them for their o l yalty and support theCompany during FY 2016-17 made a dividend pay-out of Rs. 27/- per equity shares (threeinterim dividends of Rs. 9/- each with a total outflow of Rs. 1375 crores includingCorporate Dividend Tax). This was in addition to an interim dividend of Rs. 9/- per equityshare 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 validatingour key n i vestment decisions. IBAMC our mutual fund crossed an AUM of Rs. 10000crores 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 achievedcash break-even in record time ahead of initial projections and in a considerably shorterspan of time than its peer challenger banks. OakNorth Bank now has a loan book of over GBP400 million and this is projected to cross GBP 1 billion by 2018. Validating IBHFL'svaluation within 18 months of our investment OakNorth Bank raised equity capital at avaluation that was 50% higher
Diversifying and expanding our funding sources
Our liability franchise remains the engine fuelling our growth and continues to move rf om str ength to str ength. Our bond r f anchise gained further traction and at the endof FY 2016-17 debentures and securities contributed to 51% of the Company's fundingsources. The Company has diversified its borrowing sources by venturing into new marketsand new instruments further reducing its reliance on domestic bank borrowings.
During the year the Company successfully completed its inaugural public issue ofnon-convertible debentures of Rs. 7000 crores. The Company also tapped the internationaldebt capital markets by being only the second Housing Finance Company (HFC) from India toraise USD 200 million of masala bonds. The Company also raised External CommercialBorrowings (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 t r aditional businessmodels IBHFL is poised to e l verage its first mover advantage of being one of thepioneers in the tech-space in the industry. Greater customer convenience and operationaleffectiveness led by the effective deployment of technology and decentralisation of workprocesses has been the driving force behind IBHFL's endeavours this year. This has beenenabled through partnerships with multiple third parties both government and private toe l verage synergies with the said associations and provide a truly world-class productwith seamless customer experience.
With the introduction of Indiabulls eHome Loans India's first completely onlinehome loan product/platform we have revolutionised the home loan experience in itsentirety. A customer can fr om the comfort of his/her home or office apply for a homeloan have all documents uploaded and receive the disbursed amount within the promisedtime period.
Our pioneering technology-led efforts were recognised by the industry and peers alikethrough 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 wasalso 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 towardssustainability through our Environmental Management System (EMS). We assess theenvironmental cost of the Company's services and activities and seek to reduce oreliminate negative impact and increase their positive effects. Our EMS framework isguided by ISO 14001:2015 which specifies processes and checks to monitor and correct ourimpact on the environment. The certification helps us document our process from anenvironmental perspective and importantly gives us a means to measure and minimize theenvironmental impact of our operations.
The group's CSR arm Indiabulls Foundation has focused on areas like healthcareeducation art and culture nutrition sanitation and rural development. In healthcarethree more mobile medical vans have been added this year taking the total to 20. Thisproject has helped diagnose and treat 765000 patients. Cleft and palate surgeries weresuccessfully performed on 600 underprivileged children across the country. Four freemedical clinics were set up where over 119000 patients were treated.
Indiabulls Housing Finance Limited through Indiabulls Foundation partnered with ESHA anon-profit organisation working with the visually challenged to provide appropriateeducational tools to the visually challenged and resource deprived individuals. More than47000 beneficiaries were covered across the country. The Foundation also contributed1000 computers to tribal ashram schools night schools and shelter homes acrossMaharashtra. Scholarships were offered to over 600 meritorious students to enable them topursue higher studies. Under the Government of India's Swachh Bharat Abhiyan IndiabullsHousing Finance Limited through Indiabulls Foundation constructed toilets for girls atgovernment-aided schools in Western India.
The Foundation has been actively providing nutrition supplements to 5000 malnourishedindividuals every month and regularly monitors their health status covering over 85000children till date. It provided round-the-clock seamless electricity from the renewableenergy plant it set up to five tribal ashram schools benefiting 3400 tribal studentsevery year.
Human Resources and training
As business continues to grow at a steady pace amidst greater consumer expectationsthe human resource department's responsibility of nurturing the potential of employees isalso greater. With digitisation of the HR function we have made further progress towardscreating an environment that fosters learning and growth.
We continue to deepen our relationship with campuses across the country to hire freshtalent. Our talent acquisition programme is also continually focussed on hiring best inclass lateral talent. The HR department along with senior employees across otherdepartments is invested in developing internal talent and performing employees are givenenhanced job responsibilities in your fast growing Company.
For our vast sales force we now have an online learning platform built aroundgamified' modules to make them more involved. The HR department is also focussed onensuring good work-life balance and the general health and well-being of employees.Towards this IBHFL participates in many health awareness activities like Get FitGo' 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 committedto reforms. The government's particular focus on housing and the country's strongmacroeconomic fundamentals have converged to open up a period of immense opportunity forthe housing sector. IBHFL is coming off a period of consistent performance and has everycomponent aligned to make the most of the opportunity. I am glad to have you all along onthis exciting journey.
I would like to conclude by extending my heartfelt thanks to team Indiabulls ourcustomers bankers regulators and other stakeholders without whose support all theseachievements would not have been possible.
Founder and Executive Chairman