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Last Updated : Dec 07, 2015 03:31 PM IST | Source: CNBC-TV18

Seeing green shoots in non-retail loan book: HDFC

Keki Mistry, Vice Chairman and CEO, HDFC says he expects HDFC Standard Life‘s proposal for an initial public offer to be cleared by FIPB soon


Keki Mistry, Vice Chairman and CEO, HDFC, says investment cycle slowdown had impacted demand for commercial real estate and led to lower non-retail loan growth. However, there have been distinct signs of improvement in the non-individual category over last couple of quarters, he adds. 


In an interview to CNBC TV-18, Mistry says he expects HDFC Standard Life’s proposal for an initial public offer to be cleared by FIPB soon and that the IPO is likely to be launched in calendar year 2016, as planned.  

Mistry says HDFC is looking at raising funds through masala bonds or Indian rupee-denominated bonds issued in offshore capital markets and has been doing road shows in Hong Kong, Singapore and London to gauge demand for these bonds.

Below is the transcript of Keki Mistry’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.

Reema: Let me begin with the credit policy and the cost of money. It has been a no action policy, no change in rates, but at least the commercial paper (CP) markets seem a bit benign. Has the cost of money gone down for you at least in Q3?

A: Q3 cost of money would definitely be lower than Q2. But if you are looking at Q2, you are looking at a period which is for three months. So, the last one month of that quarter, rates had come down and from that time till now, I do not think there has been much of a change in rates.

Nigel: In Q2, your loan growth was the slowest we have seen in the last few quarters, is Q3 likely to be any better?

A: I cannot comment on Q3 because now we do not talk of anything which is not in public domain. But let me explain Q2 numbers. Q2 loan book growth was weak on a non-individual category and the non-individual category has been weak for a long time now. However, if you look at the individual loan book and if we add that loans we sold in the last 12 months then the individual loan book actually grew by 23 percent, which is exactly the kind of growth we had in the previous quarter also. It is just that the quantum of loans that we are selling has increased. So, as against selling some Rs 7,000 crore of loans in the previous year, this year in the 12 months up to September, we had sold loans aggregating to nearly, if I recall right, close to around Rs 11,000 crore.

So, because the quantum of loans sold was high, the on-balance sheet growth of the loan book looked lower.

Reema: What about the non-individual loans, because that also is not growing and that is concerning investors. Have you seen any improvement in that at all?

A: We are seeing green shoots. I mean it is not that the growth is not there. Part of the reason why the growth is also lower is a little bit o risk-averseness on our part where we are a little more watchful in giving some kinds of loans and also a slowdown in the investment cycle.

So, with a slowdown in the investment cycle, companies are not investing as much as they used to in earlier years, not in recent times but 5-7 years ago. So, since they are not investing that much, the demand for commercial real estate is relatively lower and therefore, the non-individual loan book has been growing at a slower pace.

Now we have started seeing, in the last one or two quarters, some distinct signs of a pickup but it takes a while for it to translate into loan book growth. So, I cannot give you quarters but I would be very surprised if three or four quarters from now, we do not see the non-individual book growing at a much faster pace, simply because the base has not increased by as much as the individual base has increased and there is obviously a pent-up growth that will come in.

Nigel: Could you tell us why was Standard Life’s proposal deferred by the Foreign Investment Promotion Board (FIPB)?

A: My sense is that they were not fully conversant with what Insurance Regulatory and Development Authority of India (IRDA) had approved earlier. My understanding is that IRDA has approved a transaction and with IRDA approval, it goes to FIPB. I do not know why FIPB deferred it. The only sense we get is that probably FIPB was not fully informed about the fact that IRDA had approved a transaction.

My sense is the next time FIPB has the meeting, this transaction should go through. So, our expectation is that in the coming quarter, when I say coming quarter, I mean January- March, this transaction should be completed. Thereafter, we would look to file for an initial public offering (IPO). So, the original expectation that in 2016 we would do an IPO is still very much on. When I say 2016, I mean the year starting April, 2016, as we have always said.

Reema: The external commercial borrowings (ECB) rules have been eased. Would it be easier for you now to raise loans?

A: Not really, not directly, but we had the ECB window where we used to raise money for affordable housing and there we had raised about USD 500 million a few months ago. So, that transaction was completed and now we are looking at doing this rupee denominated bond. As far as rupee denominated bond is concerned, we have met investors in Hong Kong, in Singapore, in London. This was a very preparatory kind of a meeting, a very preliminary meeting where we went without a prospectus. It was a non-deal road show just to gauge the kind of demand that there is.

And the sense we very distinctly get is that there is demand, it is a new instrument, investors need to spend a little time to get comfortable with the instrument but, clearly the interest in the instrument is very high. But the only thing is that at this moment, people are a little uncertain on how to price in the risk. I would say that the fact that RBI has now permitted Indian companies to issue rupee denominated bonds reflects RBI’s confidence in being able to manage the currency.

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First Published on Dec 7, 2015 01:35 pm
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