India’s Most Valuable CEOs: The Marathon Man

Ever since Indiabulls housing began training its lens on the business of mortgage lending, there has been no looking back for the company and its vice-chairman and managing director, Gagan Banga. The avid long-distance runner, just like his running, sees sustainable long-term growth in housing-finance. Banga aims to double the size of the balance sheet of Indiabulls Housing Finance in the next four years, from Rs 1,02,406 crore now.

The 41-year-old was one of the youngest CEOs in the country when he led Indiabulls Finance at the age of 29, but has since come a long way. Banga has been instrumental in almost doubling the balance sheet, from Rs 57,200 crore in 2014 to over Rs 1 trillion at present. Over 71 per cent of its balance sheet comprises loans, the rest is in cash and other assets. In 2011, the company shifted gear to move into housing finance, focusing on providing loans to the prime salaried class, moving away from unsecured personal and business loans from a finance company. There has been no looking back since.

That shift in business model has paid off handsomely. Over the years, the housing-finance company has clocked steady and sustainable growth in its loan book. Over a nine-month period, it registered a 30.8 per cent increase in its loan book, to Rs 81,422 crore, while PAT grew 23.8 per cent to Rs 2,066 crore. Its average loan ticket size is Rs 25 lakh and it has a well-diversified asset book spread across areas. In fact, loan assets have been rising at a steady 27 percent CAGR, while net profit has seen a 24 percent CAGR over the last five years. This on-ground performance has reflected handsomely in the company’s market value, which zoomed from nearly Rs 85 billion to Rs 319 billion currently.

Banga believes that there is tremendous scope for the housing-finance business in coming years because of rising affordability due to lower interest rates and falling EMIs. Home ownership has been increasing as renting is turning relatively more expensive across cities.

Banga’s focus is to keep costs low. Indiabulls Housing Finance has one of the lowest cost-to-income ratios, of 13.8 per cent. In 2012, the cost-to-income ratio was a high 18.7 per cent. “Lower costs improve with economies and improve our profitability,” says Banga.

Since 2014, the housing-finance company has been upgraded to an AAA rating, enabling it to lower its interest costs. The RBI has reduced the risk weighting on banks’ lending to AAA-rated HFCs, to 20 per cent, from 100 per cent, further assisting in reducing loan costs. Technology deployment is also instrumental in driving cost-efficiencies at Indiabulls HF and initiatives such as e-Home Loans, launched last year, have met with roaring success. About 18 per cent of incremental home loans have been sourced through e-Home Loans within six months of launch.

Banga’s motivation comes from seeing the business grow in size and scale over the years. He believes that, in terms of future growth, India is set to deliver on sustainable growth for a long, long time. Banga, says, “We have been growing at an above-average-industry growth rate for the last many years, and I see that growth persisting for a very long time.”

And why not, with housing a top priority of the present government, there will be myriad new opportunities both in the affordable and premium segments of the market.