Dear Shareholders and Friends
The year gone by has been unprecedented in all of our lives. At the beginning of 2020few of us could have anticipated the profound challenges that the world would face in themonths ahead. The COVID-19 pandemic prompted an unprecedented health crisis loss oflives and livelihood for millions and large scale economic disruption around the globe.Medical researchers the world over rose to the challenge and by December 2020 the firstvaccines to counter the infection were approved. By early 2021 multiple vaccines wererolled out across the world raising hopes of nally containing the pandemic.
India did well to control the spread of infections in the first wave and supported bygovernment and RBI's initiatives the battered economy clawed its way back to growth fromOctober November 2020 onwards. However the sharp rise in COVID-19 cases since March 2021has led to the re-imposition of restrictions in various states and cities which hasimpacted economic activity. The spiralling count of infections and deaths seen in Apriland early May 2021 has now receded and the economy is tentatively opening up again.Vaccination has gathered very good pace and it would not be overly optimistic to hope thatwe may nally be getting to a stage where we can put the most devastating aspects of thepandemic behind us.
Supported by generous monetary and scal measures by central banks and governments theworld over including in India deep economic damage seems to have been contained and itis expected that the world economy will be nurtured back to good health over the nextcouple of years.
Specic to the Company's business the one silver lining through the last year has beenthe resurgence of the real estate sector. Supported by favourable factors such as vastlyincreased a ordability attractive prices offered by developers lucrative payment plansand low interest rates after more than a decade the sector witnessed strong revivalacross price segments. Despite the economic toll imposed by the second wave by allevidence residential real estate demand continues to remain strong.
Resilient Performance in a Challenging Environment
Our balance sheet size at the end of FY 2020-21 stood at 93238 Crores while total loanassets stood at 80741 Crores. Our on-balance sheet loan book stood at 66047 Crores atend of FY 2020-21 as we were successful in bringing down our wholesale book in line withour strategy to de-risk our balance sheet and focus on retail lending. Pro t after tax forthe year stood at 1202 Crores.
Financial year 2020-21 was a year of repair and transition' for the Company andthe focus was on building a fortress balance sheet. Towards this the Company focussed onthree key pillars:
i. Building up capital bu ers
ii. Liquidity and ALM management
iii. Asset quality and provision cover
Strong Capital Position
Despite an extremely challenging year due to the ongoing pandemic in the year gone bythe Company raised a total of USD 515 Mn of equity/ quasi equity capital through a QIPpartial sale of its investment in OakNorth Bank and an FCCB issuance. As a result of thecapital raise our capital adequacy at a standalone level now stands at 22.8% and Tier 1at 16.3%. At a net gearing of 3.4x on a consolidated basis your Company is one of theleast levered companies among its peers.
Healthy Liquidity and Matched ALM
From liquidity perspective FY 2020-21 was a year of strong revival. Your Companyraised 21305 Crores of debt 3773 Crores of regulatory equity/ quasi-equity capital and8938 Crores through portfolio sell down/ re nance - thus raising a total of 34016 Croresduring the year. Your Company continued to maintain strong liquidity levels and deployedexcess liquidity in re-purchasing debt maturing in the quarters ahead such that the ALM isoptimally matched.
Stable Asset Quality
Your Company's asset quality has remained stable through all four quarters of FY2020-21. We have built up total provisions of 2458 Crores on balance sheet which isalmost three times of the regulatory requirement and equivalent to a healthy 3.7% of ourloan book.
Our outstanding retail loan book is now well-seasoned with average vintage of the bookclose to 4 years. Being EMI based loans the loan principal has been running down and thusthe borrower equity in the nanced property has significantly increased leading to lowcurrent LTVs average present LTV for the retail book is under 40% implying an asset coverof over 2.5x times. Thus despite the economic stress arising from the COVID inducedlockdowns and restrictions the loans are very well collateralised with significantcustomer equity which provides con dence that the asset quality will be maintained.
Two other significant areas of achievement for your Company in FY 2020-21 have beenimproved cost efficiency and stabilisation in credit rating.
Cost E ciency
In conducting pro table business a key lever with HFCs / NBFCs is cost-to-income anon-bank lender such as your Company has only limited immediate control over other expenseitems like cost of funds and credit costs which can only be reined in over medium- tolong-term. Our technology-based lending work flow has ensured industry-leadingcost-to-income e ciencies.
The senior management took the lead in reducing operating expense and took up to 50%salary cuts. Consequently employee benefit expenses for FY 2020-21 was down to 252 Croresfrom 605 Crores in FY 2019-20. As a result the Company's cost-to-income ratio declined to12.8% from 16.2% in FY 2019-20.
In the past the Company's main means of employee reward and compensation was throughwage increment. The Company is now changing its approach to managerial compensation to nowbe largely stock-linked such that the long-term interests of this key category ofemployees that drive the Company's business is closely linked with that of the Company.
Through FY 2021-22 which will be a year of transition and growth' the Companywill focus on building on the foundation of the asset-light business model it laid in FY2020-21. We will invest in people and technology even if this means that expenses arefront-loaded. As we do so a meaningful stock benefit scheme combined with Long TermIncentive Plans will give the Company an effective means to reward its employees and willalso serve as a means of employee retention as significant wealth of employees will belocked into stock-based compensation.
A big win for your Company in FY 2020-21 is the revision in CRISIL's rating outlook toAA with stable outlook. After two years of negative outlook on our credit rating theratings have nally stabilised.This gives immense comfort to our lenders as it removes theoverhang of a possible downward rating revision. I rmly believe that the rating trajectoryis now on a rm footing and as business gathers momentum I am hopeful of an upwardrevision in our credit ratings.
Stabilisation in our credit rating trajectory in FY 2020-21 was helped by ourdemonstrated access to equity capital. An upward rating revision to AA+ from all ratingagencies will open up vast pools of lower-cost capital to the Company insurance companiesand pension funds cannot meaningfully buy debt of Companies that are rated below AA+.Moreover these investors have a longer investment horizon which will be an optimal matchfor IBH's long maturity assets and thus bode well for its ALM. Cost of funds will alsomeaningfully drop. I rmly believe that another round of capital raise in FY 2021-22 alongwith stable asset quality and progress in business through our co-lending tie-ups willenable the Company to push for a rating upgrade to AA+. While the capital raise will leadto dilution and a reduction in leverage the fall in cost of funds will ensure that thereis an overall increase in RoE.
Retail focused Asset-Light Business Model
As I had highlighted in my letter to shareholders last year we have made great stridestowards fully adopting a retail focused asset-light business model'. With greaterfocus on granular retail loans we shall let our higher ticket loans especially wholesaleloans run down or get re nanced.
The most important strategic area for us to effectively scale up this model is ourco-lending partnerships. In April 2021 we have entered into a co-lending agreement withHDFC Ltd the Country's largest housing nance company to offer housing loans to homebuyers at competitive rates. IBH will originate retail home loans as per jointly drawn upcredit policy and retain 20% of the loan on its books and 80% will be on HDFC's books. IBHwill service the loan account throughout the life cycle of the loan and will earn a trailincome over the life of the loan. Integration with HDFC Ltd will give IBH the benefit of alarge franchise scale and a robust credit appraisal process and will act as a cornerstoneto IBH's new balance-sheet light growth business model.
For secured MSME loans our relationship with RBL Bank is progressing well withdisbursals scaling up every month. We have also tied-up with Bank of Baroda for home loansand Central Bank of India for home loans and secured MSME loans.
With our co-lending partnerships falling in place we can now leverage on theirdeposit-led liability franchise and complement that with our technology-led distributionto provide efficient solutions around home Loans and MSME loans to a wide gamut ofcustomers across geographies ticket-size and yield spectrum to give us balance-sheetlight growth and pro tability. Moreover technology led co-lending will help IBH offerconvenient and seamless experience to its customers as well as help expand its reach intoTier III and IV towns of the country.
The Company's earnings have stabilised through the quarters of FY 2020-21. Accordinglythe Board of Directors of your Company paid a dividend of 9 per share in the financialyear 2020-21.
Supporting Employees during COVID-19
Your Company has resolved to stand by its employees in these tough times and help themto the best of its abilities. We have tied up with multiple hospitals including FortisHospitals and Medanta Hospitals and are conducting vaccination camps at our o ces acrossthe country to vaccinate all our employees and their families. About 70% of the Company'semployees have already been vaccinated. We are also regularly monitoring the health ofemployees who have got affected by COVID-19. For employees that lose their life toCOVID-19 the Company will make suitable arrangements such that the financial future ofthe employee's immediate family is secure.
FY 2021-22: Period of Transition and Growth
FY 2020-21 was a year of repair and transition' for the Company. We focused onand have been successful in building a fortress balance sheet equity capital raises haveboosted our capital levels our asset quality is stable we have an optimally matched ALMwe have built a strong provision bu er and our credit ratings have stabilised.
In FY 2020-21 the Company also laid the foundation of its new retail focusedasset-light business model. FY 2021-22 will be a year of transition and growth' forthe Company as we will look to leverage our fortress balance sheet to scale up retaildisbursals pro tably under the new model. For this we will rely on our strong andexperienced senior and mid-management team and our tech-enabled low-cost distribution.With an established originate and securitise' model as well as strong partners forco-lending we will be a "retail focused tech-enabled low-cost mortgage originationand servicing platform"
We will measure our success by our disbursal growth value our franchise by itsscalability demonstrated by number of customers we are incrementally acquiring andservicing and build our sustainability by remaining a customer service focused low-costplatform. This will help the Company compound its NII PAT RoA and RoE in the long-term.To be able to do this we will do what we do: invest every day in leadership peopletechnology and data-led innovation.
We will continue to move forward on letting go of wholesale assets and scaling-up ourretail disbursals. Our strength is origination and servicing of loans our partner'sstrength is access to low-cost granular deposits and CASA so collaboration is the rightway forward: our partners warehouse what's acceptable to them and enable mutual earningcompounding.
Environment and Social Responsibility
Prior to 2020 be it in professional or personal life there were many things that wevery matter-of-factly took for granted. Within a couple of weeks in 2020 the COVID-19pandemic upended our way of life. We could not move about freely could not meet near anddear ones could not pursue our vocation unhindered it cut o access to education for ourchildren and left us in fear for our very lives. I particularly despair for theless-privileged sections of society who have seen their livelihoods vanish overnight andhave been forced to venture out and fend for themselves.
For all the progress that mankind has made neither could we foresee nor did we havethe time to prepare for this pandemic that has wreaked such absolute havoc.
While the COVID-19 pandemic is something that we did not see coming there is anotherdisaster that has been brewing for a while now and one that scientists have been warningus about for several years. The effects of human-induced climate change and environmentaldamage are predicted to be far more prolonged and disastrous and there would be novaccine-like quick solutions to solve it in a couple of years. Individuals and businessesshould treat the COVID-19 pandemic as a wake-up call and come together to ght the vastlygreater threat and challenge that climate change and environmental damage poses.
As a housing nancier we are also in a unique position to help with one of humanity'sbasic needs shelter. A ordable housing nance is not just a key business segment for us butis also a means by which we can make efficient funding available for purchase of a ordablehousing units to many rst-time homebuyers. With our push into new upcountry locations Iam happy that we can help more families buy their first house. We will be able to do sowith minimal carbon footprint through our technology-enabled low-cost branches.
From this year onwards environmental and social consciousness will be keyconsiderations in every aspect of Indiabulls Housing's operations. Like we report ourperformance in terms of profits and other financial parameters our annual report from FY2021-22 onwards will also contain objective measurable gures on environmental and socialparameters. And just like our financial performance is evaluated and peer-benchmarked byindependent external agencies such as auditors and rating agencies we will submit ourefforts in this direction to be evaluated by recognised ESG rating agencies.
The Company will also focus on making its workforce more diverse across gender agesocial and economic segments. We are taking objective targets for FY 2026-27 and FY2031-32 to balance out the gender ratio amongst our employees. The Company believes inrecruiting young graduates and training them towards higher positions of responsibilitywithin the organisation campus recruitment drives and greater engagement with collegesacross the country would be another area of focus this year.
Many aspects of the Company's operations such as our paper-less eHome Loans appraisalprocess electricity and water saving initiatives are guided by a desire to reduceenvironmental impact. Our social initiatives comprise the work we do working closely withour employees to become their preferred employer creating superior experiences for ourcustomers and towards developing stronger communities in a sustainable manner. We arealso committed towards achieving the highest standards of Corporate Governance by stayingtrue to our core values of Customer First Transparency Integrity and Professionalism. Weare continually working towards implementing robust resilient and best-in-class corporatepractices in every facet of our operations and in all spheres of our activities togenerate higher returns and maximizing shareholder value.
From this year onwards ESG metrics will be a key part of evaluation of all theCompany's processes and performance measurement of teams and individuals.
Looking back I am proud of the effectiveness with which the Company and its peoplehave navigated the crisis and would like to commend the commitment that all my colleagueshave shown in supporting the Company as well as each other throughout this challengingperiod. I would also like to extend my sincere thanks and appreciation to our customerslenders investors regulators and other stakeholders for supporting us in our long-termgrowth journey.
Vice Chairman MD & CEO