Piramal Capital will seek to bring down single borrower exposure, says MD

We have always believed in the long-term real estate growth story in India, Jijina said

Piramal Capital & Housing Finance, the finance arm of Piramal Enterprises, has been reducing exposure to real estate developers and increasing the share of housing finance in its books to de-risk its portfolio. Khushru Jijina, the managing director of the company, tells Raghavendra Kamath that the company with partner with foreign investors and others to co-invest in large deals. Edited excerpts:

How has Piramal Capital realigned and recalibrated its portfolio in the last six months? 

During the past few months, when most of the other large NBFCs have gone slow on their mortgage-lending business, we leveraged this opportunity and disbursed Rs 1,700 crore in the past quarter as housing loans, against our normal disbursement of around Rs 850 crore per quarter. Today, our housing finance book is seven per cent of our overall loan book as on December 18 quarter from 4 per cent as on September 18 quarter. We expect it to increase to 10 per cent of our overall loan book by March 2019. Whilst our support of large transactions with our preferred partners continues, we have also decided to not keep the entire loan on our books. To this effect, we have formed a club of like-minded co-investors, which include foreign institutions and other long-term investors, who will participate alongside us in large transactions going forward.

We will also continue to grow in our non-real estate vertical – Corporate Finance Group –at a higher rate than our real estate vertical and we plan to bring down the share of wholesale real estate funding from about 73 per cent to 50 per cent in the next two years. Despite the shift in the portfolio mix, the overall loan book will continue to grow strongly at a rate of around 25 per cent.  In addition, we are also focussed on increasing our fee income through the formation of an Asset Aggregation Platform focused on renewables and roads by partnering with patient capital providers like pension funds, etc. 

In hindsight, do you think you went too fast and too deep in real estate lending? Your views?

No. On the contrary, we have maintained that if you have to be a lender to the real estate sector you need to understand the sector well and also be able to provide capital to the sector all the way from equity to housing finance. We have always believed in the long-term real estate growth story in India. We strongly stand by our thesis to back the right developer, project and location. As always, we have been very selective in our developer partners. Also, we feel that we have been successful because of our deep understanding of the sector. Real estate is an extremely local story. You have to understand the sector, location, approval metrics, end-user demand and velocity well in each micro market.  

What is the way forward for Piramal Capital in real estate lending? 

As mentioned, over the next year, the majority of the loan book growth will comprise retail housing loans. In the wholesale real estate space, we will continue to fund our select preferred developer partners. We have ensured that despite the macro headwinds, all of our projects continued to be sufficiently funded so as not to hamper construction progress. Also, we will seek to bring down our single borrower exposure to ensure more diversification and granularity in our book.

How do you plan to recover your loans to developers when the situation is tough in the market? 

We have been saying this for a long time that the biggest mistake people make is to paint the real estate industry with the same brush. Today, the market in Bengaluru and Hyderabad are doing pretty well. The mid-market segment and affordable housing in Mumbai also continues to do well. Even in the NCR, we have been seeing in the past few months that houses near completion are selling well. However, we would like to reiterate that it is only a few developers who are able to sell well and outperform the others. The sales data of our developers suggests that their sales are 7-8x of other competing players in their micro market and their inventory overhang is a third of the average in that market. This was witnessed even in the last quarter, which drives home our point that the market is indeed consolidating.  

Also, we provide the developer with financial closure on the day he buys the land. As long as he continues to construct and complete the project and with our cash/security covers, there is absolutely no erosion in value. So, we are not dependent at all on refinancing to exit our loan. 

What will you do with assets even if you acquire projects as part of recovery as markets are bad? 

While markets are bad the good developers continue to sell. What has held our portfolio in good stead is not just our selection of developers but our ongoing monitoring process, which gives us warning allowing us to course-correct much ahead of time. However due to consolidation taking place over the past many months, we have also started playing the role of a match maker helping our stronger tier 1 developers to enter into existing projects with other stressed/leveraged developers on fairly attractive terms. This is a win-win situation for all 3 parties.  

Heard you are down selling LRD portfolio. Can you please throw some light on that? 

Yes, we are selectively down-selling LRD loans to banks as it is a relatively lower ROE business and using the same liquidity to increase our home loans exposure.