Most property deals today will be via cheques: Keki Mistry

Speaking to CNBC-TV18 Keki Mistry, Vice Chairman & CEO, HDFC said that most property transactions that will take place today are ones which are cheque payments. A significant portion of our customer base are salaried. It will be through cheque payments.Below is the verbatim transcript of Keki Mistry’s interview to Prashant Nair & Ekta Batra on CNBC-TV18.Prashant: With some time now behind us with regards to analysing the implications of the black money move, curbing black money in the system by the government in the evening what are your thoughts and secondly what impact do you think this will have on the loan against property (LAP) business for the LAP industry?A: First of all my view is that there has been so much of talk about the black money in the system that it was extremely critical that we take some drastic measures or dramatic measures or path-breaking measures to try and drain in black money. In that sense, the move is a great move. It will bring in huge long-term to medium-term benefits for the country as a whole, for the economy as a whole.I am told that there is something like Rs 15 lakh crore of notes, which are in circulation of Rs 500 and Rs 1,000 and if we assume that even one-third of that does not get cancelled or does not go back into the banking system then we are looking at a very sizeable amount of money of may be Rs 5-7 lakh crore where the notes will just get cancelled. If those notes get cancelled my sense is that the liability of the Reserve Bank of India also comes down. This issue of notes would be reflected as a liability in the books of RBI, it has an impact on the markets. It will have an impact on the deficit, so it is great move.Also black money being stashed around in the system has been creating inflationary pressures. Those inflationary pressures will go away, so medium-term, long-term it brings in huge benefit. In the short-term, there might be some degree of inconveniencing that the people may have, but that is a very small price to pay for such a huge benefit that we will get in the medium-term to long-term.Coming to the real estate, most of the property transactions that take place today -- most of them, obviously there will exceptions -- are transactions where it is 100 percent cheque payment. If you look at our customer base, a significant a very significant portion of our customers are salaried employees. Salaried employees just do not have the wherewithal to be able to collect cash and pay for buying a property and therefore a very significant portion is through cheque payment.My sense is that demand will accelerate because in the few cases where there was some degree of a cash, which was being asked for, people didn’t have the wherewithal to give that cash and therefore couldn’t buy the property. Now they may be able to do so.Prashant: What about secondary market transactions and land transactions?A: I am talking largely of the primary market but if you were to look at the market a very significant portion of the business, very significant portion of the sales that happened in the economy are largely in the primary market. Secondary market is which happens in a Mumbai or in Bangalore or in Chennai. However, in all the tier II, tier III towns it is largely the primary market. Even in Mumbai it is also largely in a primary market. My sense is if you were to look at all the property transactions more than or probably closer to 85 percent of the transactions will be in the primary market. In the secondary market then certain cities it is known that there is an element of cash.Ekta: Are the fears of may be asset quality spiking unfounded in the near-term at least for the LAP portfolio may be not for HDFC but for other lenders?A: Depends entirely on how a loan against property was given by the concerned entity. For example when we give a loan against property -- and let me talk first from the HDFC angle -- we look at the repayment capacity of an individual when we give a loan. We do not look at property values. The loan is not given as a percentage of the value of the property it is given 101 percent of the cases based on the repayment capacity of the individuals. So, our appraisal of a LAP loan is no different from our appraisal of a housing loan.LAP loans today and because of the fact that our lending, our norms, our appraisal is so very stringent, our LAP portfolio has not been growing at all. So today LAP would be 4-5 percent of our lending. So, it is not being growing and the LAP that we have been doing has been very conservatives safe lending based on the repayment capacity of the individual.So, now the broader question on the market -- it depends entirely on who the lender is. There are lenders who are being conservative in their lending practices as far as LAP is concerned and there are also players in the market who have not been so careful, who have not been so conservative and who have been lending based only on property values. If someone has been lending only on the basis of property values, then I don't know what impact it will be. There may be some impact; I don't think there is going to be a spiralling impact on NPAs but there might be a marginal impact.I would like to reiterate that the bulk of the loans that are being given in the formal system, when I say the formal system, I mean banks, HDFC, some of the housing finance companies that I can speak of, the LAP loans that they do, they do it very conservatively based on the repayment capacity of the individual. I think the best way to evaluate whether the LAP loan is a risky loan or not a risky loan is to look at the interest rate on that loan.So, if someone has been lending money at 10-11 percent -- not even 11 percent, less than that -- then these cases are generally very safe lending. However, if the lending has been done at 13-15 percent, then it is a little risky.Ekta: Are disbursements going to get impacted at least in the near-term and similarly for collections may be EMI delays of around 1-2 months on account of this?A: Not to my mind, see a significant portion of the repayment comes through salaried accounts. So, people repay money through their salary account, through their deduction from their salary. There are post dated cheques that are issued we don’t accept cash for repayments. Therefore to my mind collections don’t get impacted.As far as disbursements are concerned again talking now specific HDFC, a most of our customers are salaried employees. As far as salaried employees are concerned, this is going to be business as usual. So, I don’t see this having too much of an impact. In fact I really don’t see having an impact at all.