Vishwanath Nair, HDFC vice chairman and CEO Keki Mistry details the business outlook and expectations from RBI monetary policy. Excerpts:
This quarter, profit grew 10% year-on-year. What is your expectation for the rest of the year
Dont look at 10% as the bottom line number. The profit-on-sale of investments is not something that occurs every quarter. So you have to look at profit growth before sale of investments, before dividend income and before tax there growth is 16%. The second point is that if you look at dividend income last year, the largest source of dividend income is HDFC Bank. Last year, HDFC Bank had paid dividend in the second quarter in July 2012. This year, they paid a dividend in June 2013. So what happens is that the dividend income which is a very huge sum of money got reflected in the first quarter of results and last year in the second quarter of results. So, naturally when you compare this years second quarter with last years second quarter you show a big decline in the dividends. You have to look at the growth before dividend, before profit on sale of investments which was 16%. Thats really the core operating profit.
How does the loan growth look for rest of the year
We never guide in terms of profit, but I can tell you, in my view, the spreads should remain in the range of 2.2% to 2.3% and projected growth, before the selling loans, is around 18-20%. A bulk of it should come from the individual loan book.
On the non-performing loan side, you mentioned there is one chunky account which is HIRCO. Apart from that what are you seeing on the asset quality side
See, on the individual loans front, there is no strain at all. We have seen lower NPAs in this quarter compared with the June quarter of 0.61% to 0.59% this quarter.
Have provisioning requirements eased
There has been a change in the provisioning requirement from the National Housing Bank. The requirement has been lowered from 100 bps to 75 bps. That frees up about R45-50 crore of provisioning. So weve decided to free up that saving in provisioning, and that would be taken over three quarters. So for the first quarter, savings of R15 crore is reflected in the current quarter.
This being the festive season, most banks have announced some sops for retail customers. Is there anything from your side
We are looking at that. We will come out with something soon.
What are the expectations on interest rates
I expect to see a reduction in the marginal standing facilty (MSF) rate which means short term rates should come lower. I would also expect an increase in the repo rate. The increase in the repo rate will largely be in the account of the foreign currency non-resident (FCNR) deposits. With so much of dollar coming to India, it would create liquidity and that would put pressure. It could fuel inflation in the future. I also expect inflation to gradually come down, not over the next two months, but December onwards. The core inflation numbers are very low, but inflation was high because of food. We had a good monsoon, so hopefully the food prices would ease. As the food prices get lower, it will have a significant impact on the current inflation. So my view is that in 2014, we will start seeing the interest rate cutting cycle start. It is difficult to say it will start in January, March or April, but I expect interest rates to be lowered in 2014.