Last Updated : May 18, 2016 08:17 AM IST | Source: CNBC-TV18

Non-individual biz to pick up in the medium to long-term: HDFC

HDFC has seen a sharp growth of Rs 4000 crore in the non-individual segment in the last quarter, which is expected to continue once the investment cycle picks up and rural demand increases, says Keki Mistry, Vice Chairman & CEO of the company.

The country's largest mortgage lender HDFC is not worried about low on-balance sheet loan growth as higher loans sold is helping the lender get higher returns on equity, said Keki Mistry, Vice Chairman & CEO of the company.

In an exclusive chat with CNBC-TV18's Ritu Singh, Mistry said the company is earning a weighted average return of 1.2 percent on Rs 32,000 crore of loans sold.

HDFC has seen a sharp growth of Rs 4000 crore in the non-individual segment in the last quarter, he said, adding, he expects it to continue once the investment cycle picks up and rural demand increases. Mistry is confident of growth this business in the medium to long term. 

Talking on HDFC Life initial public offering (IPO), Mistry said the offer documents will be ready within the next one month, adding, this will pave the way for the first public listing of any insurance company.

Below is the verbatim transcript of Keki Mistry’s interview with CNBC-TV18\\'s Ritu Singh.

Q: Are there any provisions for risk in the balance sheet?

A: I don\\'t really care for on balance sheet growth of loans because at the end of the day even if you sold the loans it is not that we are booking profits on those loans that we sold upfront. The income that we earn on loans which have been sold come on the life of the loan. So, we have a book of about Rs 32,000 crore odd and on that Rs 32,000 crore we earn a weighted average return of 1.2 percent. Now on this Rs 32,000 crore of loan which we have sold we have not provided credit enhancement. So, there is no risk that we carry in our balance sheet. There is no provisioning that we need to do on our balance sheet. Obviously since there is no risk there is no provisioning, there is also no capital requirement. So, without providing capital we are earning income which then significantly enhances return on equity (RoE). So, we look at it on an assets under management (AUM) basis.

Q: What about the non-individual loan book, what is the growth you see there. You spoke about slowing down investment cycle?

A: If you look at the fourth quarter of the financial year where we had the accounts a couple of weeks ago there we had seen pretty sharp growth in the non-individual component and we have had a growth of nearly Rs 4,000 crore in the non-individual category.

Now, non-individual loans tend to be a little lumpy. So, it is not that every quarter you would see a similar kind of growth. There may be a quarter where the growth is a little lesser and there may be a quarter where the growth is a little higher. But my sense is that if you were to look at it over a medium to long term non-individual business has to pick up. Non-individual business to some extent is dependent on the investment cycle and as the investment cycle picks up for the various reasons I mentioned earlier pick up in rural demand leading to more people investing then my sense is that we will see a sharper growth in the non-individual category.

Q: You gave us a timeline for life initial public offering (IPO) some time towards the end of this year hopefully. Have you appointed bankers for this 10 percent sale?

A: Not officially appointed bankers but yes, we have been discussing with a few bankers and we are now in the process of finalising things. We should be finalising the offer documents probably in the next one to one and half months and then look to file with the various regulatory authorities and my sense is we are on schedule as far as IPO is concerned and the original belief that the IPO will happen in the last quarter of the calendar year, still very much on the cards.

Q: You are looking for an IPO for the life process with the general insurance business where you have a partnership with ERGO. What is the update, are they looking to hike their stake?

A: General insurance we have a partnership with ERGO. ERGO is a wholly owned subsidiary of Munich Re and ERGO has clearly articulated their desire to increase their shareholding in the company from 26 percent to 49 percent which is the right that they had in the shareholders agreement. So, that is in process at the moment. We have got the regulatory approval. We need to make some minor modification in the shareholders agreement and that process is still going on. So, I would believe that in the next month or two that transaction should get completed but there there was no plan to do an IPO.
First Published on May 17, 2016 10:35 am