Subsidiaries/associates are self-funded and, thus, further dilution is not needed; strong internal accrual (core lending RoE of 26%+) will take care of HDFCs loan growth requirements. Based on assets and liability side flexibility, spreads shall remain in the range of 2.15-2.35%.
Led by stable spreads, single-digit cost-to-income ratio and superior asset quality, return ratios are expected to remain above industry average, with core RoA of approximately 2.5% and core lending RoE of approximately 26%.
On the back of latent housing demand and structural growth drivers, we believe 18-20% growth will not be a difficult target for HDFC. Though, select urban and metro markets are witnessing a slowdown in disbursements, company has ramped up distribution in Tier-II and -III centers. No major job losses, lower LTV (65%) and installment-to-income ratio (approximately 40%), financing of immovable real asset and lending against cash flows shall keep retail asset quality healthy.