Lending rates are set for a pause and then an upmove if the present liquidity conditions persist, Paresh Sukthankar, deputy managing director, HDFC Bank, told reporters after the bank’s Q3 results. The bank has decided to disclose the total value of its divergences on asset quality with the Reserve Bank of India’s assessment now as there is finality on the status of some large accounts, he added. Edited excerpts:
You had earlier said there was one account with a divergence with RBI, now you mention three…
As of the last quarter, we had mentioned that while there was no finality, we had already made contingent provisions. Immediately thereafter, that account had been declared an NPL (non-performing loan). Of the balance amount, some had already been declared NPL in the June quarter and the September quarter. Since we now have finality, we have given the divergence of the total NPLs. One of the accounts has been upgraded by the JLF (joint lenders’ forum) itself. As far as the provisions are concerned, the portion of floating provisions have gone back to floating and the rest back to contingent and other provisions. This was an account which was subject to the flexible structuring under the 5:25 framework and in respect of that, in the supervisory process it was felt that the flexible structuring amounted to restructuring and hence it was declared an NPA (non-performing asset). From a servicing perspective, the account had not been past 90 days, which was the accounting reality.
What is your view on lending rates?
Given, in particular, liquidity conditions and the fact that even at the system level, loan growth for the first time now is outpacing deposit growth quite sharply, I think if anything, either rates will be in for a bit of a pause, or if these liquidity conditions remain the way they are, there could be some upward pressure on both the deposit and lending rates.
What is driving loan growth for you?
A large part of the loan growth has come from retail, where the business itself is growing and we are a market leader across products. Some of it has come from the wholesale side, both large and mid-sized corporate as well as SME (small and medium enterprise), where we are growing faster than the system. If you see, across businesses, loan books have been growing from high teens to low 20s and the current distortion is just a base effect. Sequential momentum of around 4% continues to be strong. Right now, given that a large part of the economy is driven by consumption demand, the retail part has seen strong underlying demand, whether it is car sales or truck sales. On the wholesale, it is driven more by some amount of working capital, some amount of mid-tenor loans and some refinancing.
What will capital from your forthcoming qualified institutional placement (QIP) be used for and when can we expect the issue?
The pace at which we are growing, we have been consuming capital and that is evident even in the last few quarters. So, the capital that we are raising is to support growth for the next few years. The threshold of what is acceptable from a tier-1 perspective for a bank like us is slightly higher when you factor in the growth for the next few years. This is not capital allocated for business one or business two. We believe we have multiple engines of growth and this should support that growth for the next few years.
The timing of the issue is still very wooly because we are going through the process of getting shareholders’ approval. Then we need government approval because there is a preferential offer to HDFC (Housing Development Finance Corporation) and the balance amount will be raised through combination of QIP, or ADRs (American depository receipts) or other structures. Till we get these requisite approvals, any set speculation of timing is not relevant at all. At this point of time, we don’t have any particular time window.