Up-to-date with fund needs; won't hike rates: HDFC's Mistry

Reserve Bank of India's relentless efforts to tame the rupee has resulted in it imposing a string of measures which are keeping banks on a tight leash. On Tuesday, the central bank announced fresh measures to drain cash, making access to short-term funds harder for lenders. It has lowered the overall limit for borrowing under the daily liquidity adjustment facility (LAF) - which offers funds in exchange for collateral - for each bank to 0.5 percent of deposits from 1 percent. This move gave fresh thrust to the existing talks that banks will eventually raise lending rates.

Also Read: ICICI Prudential MF launches CNX 100 ETF But HDFC's Keki Mistry believes that RBI measures are temporary in nature and will not warrant a rate hike. As far as its fund requirements are concerned, the housing major maintains a flexible approach and has shored up it requirements up to the month of July. However, if the tightening measure continues for unforeseen period, lending rates will have to be raised. Tuesday's moves come a week after the apex bank's initial steps which did not steady the rupee to the desired extent. The home currency remained volatile and within the sight of a record low of 61.21 hit on July 8. Below is the edited transcript of his interview with CNBC-TV18: Q: You are more dependent on borrowing from the market and market rates have clearly gone up 200 bps in the last two weeks, what is your sense, is it only a matter of time before you push up lending rates? A: When you talk about our borrowing, if you look at our balance sheet over the years, we have a very flexible approach to funding. At times when interest rates are low, yes, we raised a lot of money through bonds. At times when interest rates are high, we raised a lot of money through deposits. So we keep an extremely flexible approach to funding. For example, you would have seen that last year, you would have seen that the year before the last and so on and so forth. We have to plan our funding a little more carefully. If we have to first evaluate whether this is a long-term measure or a short-term measure, my personal view – I reiterate what I have said earlier – is that it is a little unlikely that this measure will continue for too long a time because if this continues beyond a month, it will start choking growth in the system. That to my mind is not what the RBI would be looking at. Q: It is already two weeks, are you saying that your waiting period is August 15, when will your patience run out or when will your feeling turn around to this being slightly longish? A: First we will have to see what happens in the credit policy next week. Let us see if RBI looks at interest rates whether they change anything on rates, they change anything on CRR. I personally don’t think they will but let us wait and see. As far as the policy measure is concerned in the recent past, I suspect they’ve done it is because they must be having data which would suggest to them -- and that is data which is not in our hand -- that there is a lot of speculative activity in the rupee, which is being created by people taking money, hedge funds or whoever, in the short-term market here and then shorting the rupee. Now, if in the long-term you want interest rates to come down in India then you need stability in the rupee. One cannot drop interest rates if you are seeing this kind of volatility in rupee. We have seen that over the last month to a month and a half the rupee has been very volatile. So if it is the measure just to get some stability on the currency based on the data that RBI has had then I don’t think this measure will last for very long. A month, five weeks, six weeks you cannot measure it in terms of days. Q: My measure is only when will you think that, “Okay I have waited enough and now let me pass on the cost”? A: If you see the month of July for example, we have raised the funds that we required for the month of July pretty much in advance. So we are not going to the market to raise money at least for this month. As we get into August, we will have to see whether deposit flow continues to remain as good as we would like to see it. If not then we will have to look at deposit rates and if were to do that, we would also have to look at the lending rate. But in the immediate present, I still do not believe that there would be a need to look at lending rates still until we have seen the RBI policy next week and seen what RBI is trying to do. Q: You all have raised the money that you require at least in the near-term but what then about the system, if it plays out according to your expectations that it will not last for a very long time, one month or six weeks etc then do you think it will necessitate the system to raise rates? A: I think each bank will be positioned very differently. It depends on the liquidity level that each bank is carrying. As far as HDFC is concerned, we try to keep a very match-balance sheet so we try to take no mismatches whether it is interest rate mismatch or a maturity mismatch. If incremental money does start costing a higher rate and we believe that that is a sustained thing which we will continue for 2-4 weeks then at some point of time we would have to look at lending rates but as I said earlier, at least today I don’t think that the necessity is imminent. Q: Can you switch around your funding differently immediately or will it take some time? A: If you see the last three years and if you look at any analyst report, you will see that we have shifted our funding pretty successfully over these last three years.