No significant fall in rates; loan growth dull: Gruh Fin

Sudhin Choksey, managing director, Gruh Finance, a subsidiary of HDFC Ltd, explains to CNBC-TV18 that there has been no impact on interest rates since the State Bank of India announced a cut in home-loan rates for new customers.

Though there has been a fall in rates on 10% of  borrowings, it is too negligible, Choksey adds, to be passed on to the customer. He also says that there has not been any significant growth in loans since the first quarter. Below is an edited transcript of the interview on CNBC-TV18. Q: The State Bank of India (SBI) has announced that it has cut home loan rates for new customers. Has this caused any impact on demand? Will you or other finance companies in your segment plan to drop rates?
A: At the moment, there has not been any negative impact as far as demand for group home loans is concerned. We’ll have to wait and watch because SBI made the announcement just ten days ago. Q: Apart from pressures from the competition, the cost of borrowing itself has come down by 20-30 basis points as reported by group company HDFC. Do you think the cost will be passed on to customers in the rural areas?
A: As soon as our borrowing costs reduce, we would definitely attempt to pass the benefit to the customer. But one of the banks from whom we borrow 25-30% of our borrowings, has not reduced its base rate and hence, we have not received any such benefit from the banking sector.
Similarly, the National Housing Bank (NHB) also has not announced any reduction in its normal refinancing schemes. Yes, there has been a decline in the interest-rate from borrowings from money market and the commercial paper segment. Q: What is that percentage of money that you borrow from the commercial paper market or from the wholesale-listed instruments market and how much has the cost fallen?
A: A brief profile of our borrowings- almost 40-50% borrowing is from NHB where we get normal refinancing as well as for the Golden Jubilee Rural Housing Finance and the Rural Housing Fund. So that constitutes almost 50%.
Another 20-30% is borrowed from the banks. At the moment there is no reduction in rates from any of these sources. Around 10-12% is public deposits. We have not yet announced any reduction as far as public deposits are concerned. But there has been reduction of borrowing costs on a component of 10%. Q: So, there is no scope to pass on the reduction yet?
A: No. I don't think there has been a significant decline in the overall weighted average cost of borrowing to justify a very strong case to pass on the benefit. But I think in a course of time we expect that it should come down at all sources. The banks also should announce reduction in the base rates. We expect that and if that happens probably we should be in a position to pass on the benefit. Q: The new priority sector rules require foreign banks to be on the same footing as domestic banks in meeting priority sector obligations. The easiest route for foreign banks to meet their priority sector obligations would be to either buy securitised paper or loans from people like you.  What is your average ticket size and do you see this as a venue that will reduce your cost of money in the days to come?
A: I think this certainly offers us more borrowing options as far as the banking sector is concerned. The foreign banks would be eagerly and keenly looking at securitising paper or even considering giving us a term loan. Our average loan is around Rs 6.5 lakh. So we expect this could be a good opportunity. Q: What will your growth in loans be in this year and how much has it grown to date?
A: I think the status quo of the first quarter continues. There haven't been any significant changes in July and August. With numerous holidays in August, the growth in loans has not been as great as before. But we should be able to achieve a growth in loans of around 25%.