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Last Updated : Mar 15, 2016 06:49 PM IST | Source: CNBC-TV18

Individual loan growth healthier than corporate book: HDFC

The demand from individuals for housing loans is likely to remain healthy in the short-term, says Keki Mistry, VC & CEO of HDFC.

Growth in individual loan book is higher as compared to the corporate book, says HDFC’s VC & CEO, Keki Mistry. The company’s retail book, as of December 31, 2015, stands at 73 percent, he adds.

In an interview to CNBC-TV18, Mistry says: “Retail loans (are expected) to grow faster than corporate loans in FY17.” The demand from individuals for housing loans is likely to remain healthy in the short-term, he says.

HDFC’s current retail spreads are a little under 2 percent whereas the wholesale spreads are close to 3 percent. The risks attached to wholesale loans are higher than individual loans that result in higher provisioning for the former, Mistry says.

Mistry expects a rate cut by the Reserve Bank in its April meet. However, passing of this rate cut to customers will depend on the company’s cost of funds, he adds.

Mistry expects a 50-75 basis points cut in FY17.

Below is the transcript of Keki Mistry’s interview with CNBC-TV18's Ekta Batra and Mangalam Maloo.

Ekta: The fear amongst investors is that your corporate loan book is not growing fast enough? In fact tour corporate book at point used to be 30 percent and retail is at 70 percent. Is that likely to remain there?

A: In the short term immediately what you see is the growth is largely in individual loans. We have seen that in the first nine months of this year. Even as we look forward we see the demands for individual loans to be very strong. And this comes more from a variety of factors.

One is if you look at the demographics 66 percent of India's population is below 34 years of age and unlike the west in India people buy a house when they are in their mid 30s. With so many people today being below 34 years of age all these people will be progressively over the next 1-15 years need housing and therefore housing loans.

Mangalam: So in that case could you tell us what was the corporate book in the nine months of FY16 and how much it will be in Fy17

A: As of December 31 our retail book was 73 percent.

Ekta: And in FY17 will the retail grow even more to say 75 percent of the book?

A: I can't comment on future but we do see a continuous expectation that a demand for housing from individuals will continue to remain strong for a very long period of time.

Mangalam: So, what kind of a loan growth do you see in the corporate sector in FY17?

A: Again I can't comment for the following year. But in the current year if you look at the numbers of December individual loan book if you add back loans in the last 12 months grew 23 percent.

On balance sheet growth was lower because we issued more loans this year than we had done in the previous year and in the non-individual book the growth was 10 percent. The growth over the last four to five years in the non-individual books have been relatively lower compared to the individual loan books.

Ekta: What are your spreads in the retail book vis-à-vis your corporate loans. Aren\\'t they lower?

A: See the retail spreads are little under two percent say, about 1.97 percent and again I am giving you all December numbers and the wholesale spreads are around three percent. But having said that the risk attached to a wholesale loan is higher than that for retail loans and therefore the standard asset provisioning requirement is higher for non-retail loans versus retail loans, that is number one.

Number two, if you look at the risk rate the risk rate on non-individual loans is greater than the risk rate on individual loans. So, if you were to look at the return on equity (ROE) which is the way most fund managers, investors would look at return the ROE on both segments is the same. If you adjust for risk, if you adjust for provisioning and if you adjust for higher capital requirement.

Mangalam: So in that case if the retail grows faster as you spoke in ROE terms will you not be hurt or will your earnings per share (EPS) will be slow?

A: In EPS terms in the short term individual loans will generate lower EPS. In the long term because of the greater risk associated with non-individual loans, if you look at asset quality for example again December number our gross non-performing loan (NPL) number is 72 bps but if you take that with individuals and non-individuals individuals stands at 53 bps and non-individual stands at 1.1 percent. So, non-individual loans carries higher NPL number and therefore a higher provisioning requirement.

Ekta: Will your loan growth in FY17 be as good as the nine months of FY16?

A: I see buffing on the cast today which would make me believe that it would not.

Ekta: There are also fears that gross domestic product (GDP) will grow more slowly, won't that hurt your loan growth?

A: If you look at the last many years, if you look at different years you look at the GDP numbers two years ago it was five percent. In one year we had 4.5 percent but in each of these years you look at individual loan book growth then you will see that irrespective of whether economic growth was 9-8 percent or whether it was five percent our individual loan book demand, the demand for individual loans continue to remain strong.

As I said earlier there are several reasons for that. Low penetration levels, demographics in India and a whole variety of other reasons.

Mangalam: Yesterday inflation levels came in lower than expected. In fact much lower at 5.18 percent. In that case do you expect a 50 basis point cut in April from Reserve Bank of India (RBI)?

A: I would not rule out a possibility of a rate cut. I probably spoke on your channel earlier on what my expectations on interest rates were for the year. And I said that my expectations were 50 to a maximum of 75 bps reduction in the interest rates in the course of the year. It was very difficult to time these things. The Budget is behind us.

Mangalam: But will our easy monthly instalments (EMIs) fall? Will you and the banks cut rates, given that liquidity could improve, RBI may cut and then marginal lending rules also will becomes effective?

A: First we have to wait for these things to happen. Just the RBI cutting rates doesn't reduce our cost of funds straightaway. Reduction in cost of funds comes over a period of time and the interest rate reduction percolates down, but of course if our cost of funds reduces we will reduce a little.
First Published on Mar 15, 2016 02:05 pm
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