Lower interest rates will percolate into system

Written by Vishwanath Nair | Updated: Jan 22 2013, 07:51am hrs
Housing Development Finance Corporation (HDFC) expects to review its provisioning policies after the fourth quarter, says Keki Mistry, vice-chairman and chief executive officer. In an interview with Vishwanath Nair, Mistry talks about the companys outlook on margins and bad loans, and its expectations from RBI next week. Excerpts:

Results for the third quarter have been off the mark, according to some analysts.

I am surprised that people are saying results are off the mark. The third quarter profit came at around R1,140 crore and second quarter profit was at R1,151 crore, which is a fall of about R11 crore quarter-on-quarter. We need to remember that in the second quarter we had some dividend income of R194 crore and in the third quarter this income was at R45 crore. The dividend cant come in every quarter, but that has got nothing to do with growth. For the decline of about R150 crore worth of dividend, R139 crore was made up through higher net interest income (NII) at R1,624.25 crore during the quarter, up 19% from a year ago.

What is your outlook for the net interest margin (NIM) It has contracted on a sequential basis.

There must be some marginal change on a quarter-on-quarter basis. It should remain in this broad range of 4%-4.2%.

Which segment is the growth coming from

In the last quarter, growth was largely on account of individual loans. If we add back the loans that we sold in the last 12 months, the individual loan book went up by as much as 31%, to R5,264 crore. In the first nine months of the current financial year, individual loans contributed about 85% of the growth in the loan book while non-individual loans contributed 15% of the growth. Growth should hopefully continue in the fourth quarter also.

What are your views on the asset quality going ahead

On the non-performing assets (NPA) front, fortunately we have not seen any cause of concern yet. This is the 32nd continuous quarter, where the ratio of non-performing loans is lower than the corresponding quarter last year, and NPAs continue to be very low while provisioning is very elevated. The balance in the provision for contingencies account as at December 31 was R1,783 crore against a regulatory provisioning requirement of R1,492 crore. The reason is that we have provisioning for standard assets, plus historically over the years we have always provided at a rate which is higher than what the regulation requires us to do. After the fourth quarter we will take a call on whether we need to keep such high levels of provisioning.

Will a cut in interest rates by RBI translate in to a cut in lending rates by you, immediately

We expect RBI to look at a 0.25% reduction in rates next week. We cannot translate it immediately into a lending rate cut because we are not a bank and we do not borrow from RBI. But sooner or later lower lending rates will percolate into the system. As and when our cost of funds will come down, we will look at lower lending rates.