Sudhin Choksey, MD, Gruh Finance, says that the bank borrowing cost and NHB refinance cost has not reduced which is a worrying factor. He also says that lending at 11%-11.25% will not sustain for a long period of time. He also says that the company is considering increasing the lending rates in a month's time.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: What is the outlook in semi-urban and rural markets? Do you see compression in demand or is the segment largely unaffected?
A: The status quo continues and we so not see any major change. The current demand is similar to last year’s performance.
Q: What do you expect to do by way of loan growth in the current year?
A: We were expecting a reduction in the cost of borrowing but unfortunately the transmission did not take place. Bank borrowing cost and NHB refinance cost has also not reduced which is a worrying factor. We cannot continue to lend at such a marginal cost which is lower than what we would have liked it to be.
Q: What is the average and incremental cost of money for you now?
A: The average cost of incremental fund is between 10%-10.25% and NHB refinance rate is 10.25%. So, to continue lending at 11%-11.25% will not sustain for a long period of time.
Q: Are you lending at that rate now?
A: Yes, we are lending at above 11%-11.25%. Either, the borrowing costs will come down or we will step up lending rates.
Q: Do you think the borrowing cost will come down?
A: Unfortunately, both April and June credit policies have been disappointing as far as transmission to us was concerned. We will wait for a month and then decide the course of action.
Q: How is demand behaving at 11.25% lending rate?
A: In FY10-11 our disbursement growth was 55% which came down to 23% last year. We continue to see the same volume coming in the last two months. So, I do not see any great increase or any change in buying pattern of the customers.
Q: If the current interest rates were to persists, do you see any weakening or will it remain stable? You also alluded to the fact that you might raise rates; do you think a 25-50 basis points change would make a difference?
A: A 25-50 basis points will not make any major difference. We expect the demand to improve significantly after the monsoon. If we have a good monsoon and developer also reduces the price, then post Diwali there could be a good demand for property. If demand for property goes up then home loan also will go up. Today, the borrowing costs are not coming down and if we have to increase the interest rates, which we would seriously look at in a month or so, then probably it can affect the demand situation slightly.