Keki Mistry, VC & Chief Executive Officer (CEO) of HDFC said the Reserve Bank of India (RBI) still has elbow room to cut rates further.
HDFC on Monday cut its lending rate by 25 basis points (bps) to 9.65 percent, effective from October 6.
Keki Mistry, Vice-Chairman (VC) & Chief Executive Officer (CEO) of HDFC told CNBC-TV18 that the “rate cut will benefit home loan customers in medium to short term.”
Mistry said the Reserve Bank of India (RBI) still has elbow room to cut rates further. He added that any further rate cut will depend on inflation numbers.
Inflation outlook for India is benign with weak global demand and low commodity prices in the country, he said.
Below is the transcript of Keki Mistry’s interview with CNBC-TV18's Surabhi Upadhyay and Shereen Bhan.
Surabhi: I just wanted to get your sense on the rate cut that has been announced this evening. To what extent do you think has HDFC now passed on the quantum of rate cuts that have been already announced by the RBI this year?
A: To the extent that our funding costs have come down, the benefit has been passed on to customers. However, that does not mean that going forward funding cost will not come down. If and when it does, we will certainly pass further rate cuts down.
The 25 bps reduction that you have seen in rates is by and large for old customers and new customers. If we were to go by saying that incremental funding costs have come down which they indeed have then it may perhaps seem possible to do a larger rate cut.
But then the old customers end up paying a higher amount which is then very unfair. So, we try to be fair to all by cutting the old customers and the new customers by pretty much the same rate.
Surabhi: But this 25 bps cut whatever elbow room or whatever leeway that the 50 bps cut gave you which was last week's cut has that entire headroom or that entire window been passed on to borrowers?
A: You need to understand that when RBI had cut rates by 50 bps. Bond rates in the system have not lowered by 50 bps. We don't borrow from the RBI. So, bond rates have typically lowered by about 70 bps odd incrementally, but we have also cut our deposit rates.
Incremental cost of funds is lower, but the old book still stands at a higher rate. It takes a while before the old book gets adjusted to current rates. That is why the 25 bps reduction - but over a period of the next few months. I can't obviously give you a timeline. But, if funding cost was to come down, we will certainly pass the lower cost benefit to customers.
Shereen: You said that incremental, you will be able to pass that on. We have seen the RBI front load its rate cut by 50 bps this time around. You were also talking about perhaps more elbow room over the next few months. If you can give us some sense as far as new customers are concerned. How much lower can we possibly see rates go down from HDFC?
A: I can't give you a numbers and can't tell you how many basis points we are going to sort of get lower over time but incrementally with every passing day if we are borrowing more money in the market, we are borrowing that money at a rate which is lower than the rate at which the existing liability is at.
Therefore, over a period of the next few months it may be possible to look at lending rates once again. But in the immediate present, 25 bps is the best that we could have done and at the same time ensuring that the spreads don't change.
Shereen: What is the expectation now from the RBI? Do you anticipate a cut perhaps as far as this particular calendar year is concerned? Is there room do you think for another cut in this calendar year?
A: I don't know about periods. I still believe that the inflation outlook in my view is fairly benign. Globally, we do not see too much of growth happening or too much demand for commodity. China slow down is also impacting commodity prices.
Therefore, my sense is that whilst the monsoons may have been not as good as one would have liked commodity prices being weak, oil prices being weak it is going to result in inflationary expectations being moderate.
The objective of further giving a kick-start to growth to investments can perhaps give RBI some room to look at further cuts in interest rates. Whether that happens in December or that happens till December or that happens in the first quarter of the next calendar year is something we will have to wait and see.
But it is going to be very data dependent. RBI is going to keep watching the data that keeps emerging and then it will be easier to take a call on where interest rates are headed.
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