Will pass on rate cuts only when cost of funds drops: HDFC

HDFC 's loan book increased to Rs 1,40,000 crore in the year ended March as against Rs 1,17,000 crore the previous year.

Meanwhile, analysts have started seeing some signs of consumption tapering, which may lead to slower loan growth ahead.

However, Mistry doesn't expect any significant loan growth slowdown in FY13. "Unless we get to a situation where people start losing their jobs, we should continue to expect a growth in-line with what we had expected last year, which was around 18%," he told CNBC-TV18.

In fact, Mistry goes on to say that he expects to deliver better than guidance of 18% loan growth.

Mistry says demand has been strong across the country, except for Mumbai. "The reason property prices are so high in Mumbai is because demand is always higher than the supply," he highlights.

Also, the effect of the 50 basis points rate cut by the Reserve Bank of India has not been fully felt in the system and things could improve when banks start cutting their loan rates.

Following the central bank's move, ICICI Bank, Punjab National Bank, IDBI Bank and Bank of Maharashtra announced 10-25 bps reduction in their base rates.

"We will pass on the rate cuts only when our cost of funds comes down," reiterates Mistry.

Meanwhile, Mistry expects to see lower inflation figures in the second half of the year.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.

Q: A word on the margin performance this time and spreads as well, sequentially it looks quite stable. Can that hold for the rest of the year?

A: If you ask me today, we don't expect any change in spreads. Let's talk of the two differently. First, let's talk of spreads and then margins.

If you look at spreads, spreads represents difference between lending and borrowing rates and if we take the last ten years, you will see that the spreads in the range of a low of 2.15 to a high of 2.35. If we look at last four-five years spreads, it has been between 2.25 and 2.35%. We don’t expect that to change and it will remain in the same range.

When you talk of net interest income (NII), you talk of net interest margin (NIM), NIMs takes into account a whole lot of other things. For example, we have sold loans, now the total stock of loans that have been sold by us aggregates Rs 14,556 crore. On this Rs 14,556 crore, we will continue to earn income of 1.53%.

We will continue to receive this 1.53% income as long as the loans remain outstanding. We are earning income on loans which are not there in the balance sheet and that then tends to increase the NIMs.