Gruh Finance to reduce dependence on banks for funds

HDFC home loan subsidiary Gruh Finance plans to reduce its dependence on bank borrowings to check rising interest costs, a top company official said.

"With the base-rate coming into play, it has become expensive to borrow from banks. We have, therefore, consciously decided to reduce our bank borrowings," Gruh Finance Managing Director Sudhin Choksey told PTI here.

Gruh Finance, which recently raised its lending rates by 0.50 per cent, might consider a further hike by the end of this year if borrowing costs continue to increase, the official said.

The home finance entity has already reduced the proportion of banking funds in its overall debt to 18 per cent from 40 per cent earlier, he said.

Lending to Gruh Finance cannot be below the base-rate, a regime which came into effect from July, and hence, pressure on the company's borrowing costs is foreseen, Choksey said.

Gruh Finance's weighted average cost of borrowing as of September 30 was around 7.6 per cent, but the average cost of incremental borrowing could rise above 8 per cent to around 8.25 per cent going forward, he said.

The interest rates now hover between 8.75 per cent to 12.75 per cent. "We might consider an increase by this year-end as we might be left with no choice but to pass on the increasing cost burden to our customers," he said.

With borrowing from banks now becoming expensive, Gruh Finance will look at alternative routes to raise finance such as borrowing from the National Housing Bank (NHB), public deposits and private placement of debentures, he said.

The private sector home finance company clocked a 57 per cent growth in PAT in H1, FY11, to Rs 32.37 crore from Rs 20.64 crore in the year-ago period. Its disbursements rose by 86 per cent in H1, FY11, to Rs 529 crore as against Rs 284 crore in the year-ago period.

Its loan portfolio as of September 30 stood at Rs 2,741.76 crore as against Rs 2,198.32 crore in the year-ago period, a 25 per cent increase.

The company's net NPAs are zero, while gross NPAs -- at Rs 37.43 crore -- constitute a meagre 1.37 per cent of its total loan outstanding portfolio, he said.

"We enjoy a healthy capital adequacy ratio (CAR) of 14.72 per cent as against the minimum requirement of 12 per cent," Choksey said.