Stake in HDFC Bk intact; credit growth @ 20% in 5 yrs: HDFC

Mistry expects a 15-20 percent credit growth in the next 5 years on the back of strong growth potential in the Indian housing market.

On expectation from the RBI, Mistry said the central bank is unlikely to reduce interest rates in its December 2 policy. He, however, expects the rate cut cycle begin in early 2015 and sees a 50-100 bps lower rates one year down the line.

Below is the transcript of Keki Mistry's interview with Latha Venkatesh and Anuj Singhal on CNBC-TV18.Latha: What naturally comes to the mind of an investor in HDFC and HDFC Bank, are you looking to reduce your stake in HDFC Bank?A: As far as the FIPB part is concerned, you need to talk to the bank but as far as HDFC’s stake is concerned, please understand that we have not even discussed it, we have never had a board meeting to discuss it, so it is completely premature to make any assumption on whether we will subscribe to the shares or not subscribe to the shares. We will obviously have to have a board meeting, we will discuss in the board meeting and then take a call. In all likelihoods, we would like to maintain our stake the way it is but that is a call the board will have to take and as far as some reports are there that we want to sell the stake in the bank, I think that is complete rubbish.

Anuj: Let us talk about your assessment of credit growth in coming years?A: We never talk in terms of specific credit growth towards the next few months or a year or whatever but if you look at the next five years, we have always said that we would expect a growth of around 15-20 percent in a business after adding back the loans we sell in the last 12 months. We see this on the back of the fact that the housing market in India or the potential for the housing market in India to grow is extremely strong, penetration level of mortgages in India is extremely low, the mortgage to GDP ratio in India stands at 9 percent compared to a ratio of over 60 percent in the West and between 17 percent and 25 percent or 17 percent and 30 percent in most of the emerging markets in Asia. India at 9 percent is extremely low so that has to go.Secondly, if you look at the demographics in India, 60 percent of India’s population is below 30 years of age and people in India generally buy or purchase their first house at the time when they are between 35 and 38 years of age and with so many Indians today being below 30 years of age, all these people will in the next several years need to buy house.So we are very confident that the kind of growth that we have seen over the last decade is something that we should continue seeing over the next several years. But we don’t get into quarterly numbers, there maybe one quarter, where it is a little higher, there maybe another quarter where it is a little lower but if we take the last several years, the growth has been well over 20 percent.

Latha: Do you expect a rate cut in the coming credit policy?A: My personal view - not necessarily an HDFC view - is that Reserve Bank of India (RBI) has fought a very strong battle, has gone on fighting inflation and now finally we are seeing the results and inflation numbers are in a systematic manner coming down. Wholesale inflation numbers came down to sub-2 percent last week and clearly we have also had the benefit of falling commodity prices globally, falling oil prices globally. So all these are factors which will keep pushing inflation lower and lower.However having said that because RBI has fought inflation in such a hard manner over these last three years, I am not very sure if they will give in right away. My personal view is that in the December policy, there will be no rate cut though I cannot completely rule out that possibility but my sense is that there will be no rate cut in December but if we were to talk like this, let us say one year later, I would be very surprised if interest rates were not 50-100 bps lower at that point of time than what they are now. When exactly the rate cut cycle will start is difficult to say but my sense is that it will be sometime in 2015 and I would say early part of 2015.

Anuj: Your latest quarterly results were not encouraging given your high standards. So the obvious question is have you seen investment cycle picking up which might get reflected in the results of the next few quarters?A: When we talk to people in industry, when we talk to people in business, we very distinctly get the sense that people who in the past were not looking at investing are now re-looking at their business plans and seeing how and when they should start looking at investing. So our sense is very clear that the investment cycle will pick up. It is only a matter of time, it is very difficult to put a date to it whether it will happen next month or the month after next but again over the next two-three quarters, I would certainly expect a pick up in the investment cycle.Now generally what you find -- and this is historical data over the last several years -- that the quarter from January to March is the quarter when you start seeing some traction, some growth in the credit offtake and one of the reasons why that happens is because of tax reasons. Under Indian tax laws, if you are a businessman and you install a new planting machinery and put it to use for even one day in a financial year then you get depreciation for six months. So generally you find that companies tend to borrow money in this period of January, February, buy a planting machinery, put a new facility to work even if it is for one-two days, claim depreciation and then -- so that investment cycle typically starts at this time of the year. So I would expect that even this year in the January to March quarter, we should see some kind of a pick up in the investment cycle.Latha: What is the final stance on HDFC and HDFC Bank merger? Is the board meeting anytime, is it on the agenda?A: No, we have always said that in the long-term it makes sense. It is something we need to keep evaluating on a constant basis whenever we believe that it makes sense from the perspective of the shareholders of both the companies, we will then talk to each other, talk to some of our large shareholders, talk to the regulators and go to the market. But it has to make sense from the perspective of both shareholders. So it is an ongoing thing we continue to keep looking at and it is certainly always on the table.