July rate cut unlikely; see no margin impact in 2013: HDFC

HDFC's Keki Mistry believes RBI is unlikely to reduce policy rates in its July policy. But higher current account deficit and free fall in the rupee's rate against the US dollar would weigh on the RBI's policy decisions, he says.
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Jul 02, 2013, 09.18 AM | Source: CNBC-TV18

July rate cut unlikely; see no margin impact in 2013: HDFC

HDFC's Keki Mistry believes RBI is unlikely to reduce policy rates in its July policy. But higher current account deficit and free fall in the rupee's rate against the US dollar would weigh on the RBI's policy decisions, he says.

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July rate cut unlikely; see no margin impact in 2013: HDFC

HDFC's Keki Mistry believes RBI is unlikely to reduce policy rates in its July policy. But higher current account deficit and free fall in the rupee's rate against the US dollar would weigh on the RBI's policy decisions, he says.

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A small segment of our portfolio will get a lower risk weight, but a significant portion of our portfolio would be at a level which is lower than Rs 75 lakh

- Keki Mistry (Vice-chairman & CEO)

The Reserve Bank of India (RBI) is unlikely to reduce the policy rate in its July policy. However, the higher current account deficit coupled with the free fall in the rupee's rate against the US dollar would weigh on the RBI's policy decisions, said Keki Mistry, vice-chairman and CEO, HDFC - India's largest housing finance company.

"The benefits of rate cuts can be passed on if sufficient liquidity is available. Rate cut is not expected in RBI's policy," he told CNBC TV18 in an interview.

Since the beginning of 2013, RBI has so far slashed the policy rate by 50 basis points. However, lenders have not passed on the benefits of rate cuts on the ground of liquidity.

HDFC has already put in application to raise funds through external commercial borrowing (ECB) route. Last week, RBI had eased fund raising norms through ECB route for the low cost affordable housing projects. Both housing finance companies (HFCs) and developers are the direct beneficiaries.

Below is the verbatim transcript of Keki Mistry's interview on CNBC-TV18

Q: RBI has lowered the risk weights on certain categories of housing loans as well as commercial real estate which is into housing and is also already attracting lower risk weights. What is the net benefit to you? Your non-individual, non-retail loans are all to people with exposures in housing.

A: Looking at the retail segment, the bulk of our loans is to people who are in the middle income segment. If you look at average loan size, for the year ended March 2013 it was about Rs 21.60 lakh. A reduction in the risk weight for loans above Rs 75 lakh does not give us direct benefit on all these loans. A small segment of our portfolio will get a lower risk weight, but a significant portion of our portfolio would be at a level which is lower than Rs 75 lakh.

Q: We got some research reports saying that 15 percent of your exposure is to categories in commercial real estate that are into housing. Is there any monetary amount that you can tell us in terms of relief?

A: It is not a question of freeing up any monetary amount. It frees up capital. If you look at our capital adequacy, our capital adequacy is frankly quite high. Our tier-1 capital on March 31 stood at 13.8 percent against the regulatory requirement of 6 percent. So the tier-1 capital will now move up because of this change from 13.8 percent by about 2.5-3 percent odd. So there is an increase in tier-1 capital because of the reduction in risk weight, but it does not result in a direct reduction in cost of funds for us.

HDFC stock price

On May 31, 2016, Housing Development Finance Corporation closed at Rs 1246.50, up Rs 15.95, or 1.30 percent. The 52-week high of the share was Rs 1370.80 and the 52-week low was Rs 1012.00.


The company's trailing 12-month (TTM) EPS was at Rs 44.88 per share as per the quarter ended March 2016. The stock's price-to-earnings (P/E) ratio was 27.77. The latest book value of the company is Rs 240.85 per share. At current value, the price-to-book value of the company is 5.18.

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