Cut in SLR was not expected; housing gets a boost: Keki Mistry

A: It is pretty much in line with what one expected. I did not think there would be any change in repo rate or reverse repo rate and that is that we have seen.

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The reduction in SLR was, to my mind, a little unexpected. How much it will change lending rates in the system or how much it will change liquidity in the system, I do not know because banks already carry a huge amount of investments in government securities. So there is already an excess holding of government securities beyond what the banks are required to hold. Therefore, in my view, it is not going to make any significant impact in terms of liquidity.

So all in all I would say the policy is pretty much in line with what one expected. It is little more focused on housing because housing is a thrust area for the government which is reflected in all the various schemes that the government has come out with in order to promote affordable housing. So I think housing gets a bit of a boost in this policy.

Latha: Do loans get cheaper?

A: For a buyer it doesn't make any difference. It makes difference to some categories of lenders and to certain segments of the market to which you lend. So there are several buckets in which risk rates have been placed, so it ranges from 35 percent to 100 percent. The risk rate is dependent on two factors. They are dependent on the size of the loan and they are dependent on the loan to value ratio. So the loans are bucketed into loans of below Rs 30 lakh between Rs 30 lakh and 75 lakh and over Rs 75 lakh. And similarly the risk rates are then bucketed into below Rs 75 and Rs 75-80 lakh and so on.

So in two of these brackets the risk rates have been reduced, so between Rs 30 lakh and Rs 75 lakh and if the risk rate is more than Rs 75 lakh but less than Rs 80 lakh then there is some reduction in the risk rate and similarly if the loan to value ratio is less than 75 percent then there is some reduction in the risk rate. I think the reduction is from 75 to 50. On the margin it has some benefits. It may not mean a significant reduction in capital but it has some benefits, but this applies only to incremental loans. It does not apply to interest rate loan but the one thing which will really actually benefit according to me will be the reduction, not in the risk rates but in the standard asset provisioning required. So it is now recognised that housing loan is a safe form of lending. This is reflected, for example in HDFC loan lending till today, our total loan loss has been only 4 bps of what we disbursed. Therefore, there is some recognition that housing loans are safe and consequently the requirement to create 40 bps upfront provisioning for standard assets has now been released.

Anuj: Will you pass on the benefit to buyers?

A: The benefit we get in terms of incremental funding is not significant. If you look at the provisioning benefit - that is the only concrete benefit, 15 bps on incremental loans taken over six year duration is 2.5 bps per year. So it's not that significant enough to result in any pass-through but having said that it's because of the credit policy, it's because of the slightly non-optimistic stance that we seem to get today in the policy. If rates in the system come down, the bond rates come down then yes, little bit of reduction in rate over the next couple of months is something which is not impossible but it certainly is not going to be substantial - that is for sure.