According to Keki Mistry of HDFC, though inflation is low, RBI will wait for the Budget – see the fiscal deficit number and the Budget fineprint – before lowering rates. Lower rates, in turn, may lead to a pick up in housing loan demand in metros, he adds.
With 70 percent of its lending coming from the individual segment, Keki Mistry, vice-chairman and CEO, HDFC says there was no decline in lending over the past three years despite economic slowdown. However, non-individual segment lending saw slowdown over the same period. But on the brighter side, there has been a mild pick-up in incremental lending in the last few months on the non-individual side, he adds. According to him, though inflation is low, the Reserve Bank of India will wait for the Budget – see the fiscal deficit number and the Budget fineprint – before lowering rates. Lower rates, in turn, may lead to a pick up in housing loan demand in metros, says Mistry, while adding that growth has mainly been coming from tier II and tier III cities. He also sees the cost of money coming down in the coming quarters. 2015, according to him, will also see lower borrowing and hence lower lending rates. On the recent insurance ordinance, he believes FIIs do not need to wait for the actual Bill to be passed for putting in money as the ruling party may just call for a joint session of the Parliament in case of hurdles and pass the Bill.
However, he does not see too many insurance companies needing capital. "HDFC's insurance arm doesn’t need capital now unless it goes in for acquisitions," says Mistry.
It is the turn of the New Year, what is the sense you are getting? Is demand for loans already picking up?
A: Fortunately for us, as far as our individual lending is concerned, even in the last three years when the economy was slowing down so much, we did not see any decline in lending and the opportunities to lend were huge. So last year for example, in the year-ended March, we grew 26 percent in individual loans, year before last we had grown 31 percent, and year before that 27 percent. So the growth numbers had never changed. 70 percent of our lending is to individuals, 30 percent is to non-individuals. The non-individual segment did see a slowdown in the last three years. We had in the first -- I am not going to get into Q3 numbers but if you look at the first six months of the year, we had seen a little bit of a pick up. Is that indicative of a massive change? Very difficult to say, but yes, we did see a bit of a pick up because if you look at incremental lending as against a situation where a year ago non-individual lending was less than 10 percent of incremental lending in the first six months, it was 19 percent though on a book basis, it is about 29 percent.
:When are you expecting the first rate cut from the Reserve Bank of India (RBI) and what would that do to demand for home loans?
A: My sense is and this is what I said earlier also that not withstanding the fact that inflation is now still extremely low, I personally believe that RBI will wait for the Budget, see what kind of fiscal deficit is left, see what kind of Budget is presented and then look at rate cuts in March. That is my personal view though I would of course be happier if the rate cuts happen earlier but I think RBI will wait.Having tackled inflation so very well over the last couple of years, they are not going to let it slip by just pre-empting it and doing the rate cuts one-two months earlier. What will it do to demand? My sense is that growth that we have been seeing has largely been coming from tier II and tier III, tier IV towns and cities. If you look at the hearts of big cities, expensive properties, those have not grown or those have seen the slowdown in the last two-three years for obvious reasons, one is property prices are high, interest rates are high and so on and so forth. So my sense is when interest rates start coming down, there will be possibly a little bit of a pick up in demand for housing loans in metros, in the hearts of big metros.
What about the cost of money? It must have already fallen for you, how do you see it in the next quarter?
A: Yes, market rates have fallen but I am saying as I said, RBI cutting rates is something I would say would happen only in March. So I would say if you look at 2015 and if I was to look at it today, 2015 will clearly see lower borrowing rates and therefore lower lending rates compared to what we saw in 2014. But if you are a home loan customer and for example, you have taken a floating rate loan then you will get the benefit of falling rates in 2015 when rates come down.
I wanted your view on the latest news that the government is using this ordinance route to push the insurance reform, the opinion that we got is that foreign investors may not be very confident putting money if it is an ordinance versus if it was a bill. What is your own assessment of what the interest would look like?
A: Very honestly this ordinance was passed just late last week. So we have not spoken to our partners as yet. This is Christmas and New Year time. So we will talk to them in the New Year and we will get a sense of what they are feeling and how they want to go about it. My personal view and this is without speaking to them and this is again based on what I have heard from experts is that any decision that is taken now or any investment that comes in now will be valid even theoretically and this is purely theoretical that the Bill fails and is not passed in Parliament in the next six months, this is my understanding. Also the government having pushed through the Bill through a legislation, through an ordinance, I am sure if for whatever reason it is not passed in the Upper House, they would probably call a joint session of parliament and get the bill through. So it would obviously give more comfort to foreign investors if the bill was actually passed but the ordinance to my mind will be good enough to get people thinking and some of them can even start putting in money.
The Azim Premji trust bought that one percent stake in HDFC Standard Life last week. Do you see any more such deals happening?
Unlikely in my view. Now that the foreign ownership limits in insurance have been opened, we will now sit with Standard Life and take a call on whether to do an IPO, when to do an IPO, how much Standard Life will increase their stake, when they will increase their stake and so on and so forth. So until we have a discussion with them, it will be a bit premature to talk about what we will do but the sense is that clearly both Standard Life and HDFC want the company to do an IPO. Timing of that IPO however is a different issue altogether but I don’t think there will be more stake sales.
More interesting conversation lies with HDFC Bank. They have taken an enabling provision for Rs 10,000 crore of capital, which would be about 5 percent of their equity, will HDFC choose not to apply if and when it is a rights issue and if and when they have a chance?
A: I think if we were to have a chance, we would like to apply for sure.
But you will block FIIs.
A: That is what I am saying. We recognise also the fact that we are considered as foreign which is very honestly very unfortunate because we are totally Indian, we have only Indian employees, we have only Indian directors, we are only listed in India, we have not issued shares directly to foreigners, we have issued all our shares in the local market in India but for whatever reason because foreigners have bought shares in the local market, we are considered foreign. So it is something we need to discuss with the bank. At this point of time if it is a 5 percent dilution, 5 percent brings us down from 23 percent to 22 percent. 22 percent still doesn’t change things significantly for us but we would definitely not let our stake fall below 20 percent because 20 percent gives us the ability to equity account the profit. If we go below 20 percent, my understanding is that under international accounting standards, we would not or we may not be able to do equity account profits. So it is a call we will have to take, we will discuss with the bank but we continue to lobby with the government to say that we are not foreign and we are domestic which is what we are.
Any progress on the proposed merger between HDFC and HDFC Bank? The last time when we checked with you, you said that there were some constraints, have those issues been ironed out and any timeline that we can expect?
A: I don’t think we can give a timeline on something like this. We have always said, all of us have said that a merger makes a lot of sense in the long-term. However, having said that there are certain regulatory costs associated with the merger, some of those regulatory costs have come down by virtue of these circulars which RBI issued in July where they permitted affordable housing loans as part of infrastructure lending and therefore they said that if we borrow seven year money and use that for giving certain categories of loans, Rs 40-50 lakh worth of loans then those loans will not qualify as cash reserve ratio/statutory liquidity ratio (CRR/SLR) in priority sector lending requirement but that by itself is enough to force the merger is something we need to evaluate and sort of keep discussing but at this point of time, if the bank is looking at doing capital issue, I would say we would go ahead with the capital issue then we would address this issue.
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