HDFC avoids subprime folly with $30,000-mortgage

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Nov 20: Housing Development Finance Corp, India's biggest mortgage provider, has dodged the bad loans that plagued banks in the US and Europe and plans to increase lending more than 20% this fiscal year, managing director Keki Mistry said.

Tighter guidelines than at US lenders means Indian mortgage companies aren't as vulnerable in a slowing economy, Mistry said in an interview in Mumbai on Wednesday.

"India is not directly affected by the subprime problem, and should consequently have lesser concern about asset quality," Mistry, 54, said. "The penetration level of financial services products in India is very low as compared to the Western world."

HDFC's bad debts as a proportion of total loans stood at 1.04% on September 30. “That's the lowest first-half figure in a decade,” Mistry said. The firm's average home mortgage of 1.5 million rupees ($30,000) compares with the typical U.S. subprime loan of $250,000, according to estimates by Washington-based Inside Mortgage Finance.

Low default rates may help shield HDFC from an economic slowdown. India's $1.2 trillion economy, Asia's third-largest, grew at an average of almost 9% since 2004. It may slow to 7.5% in the year to March 31, the central bank said.

"Even in the boom period HDFC was careful in lending, doing lots of checks on creditworthiness, and stuck to the low ticket size of the loan," said Sam Mahtani, who manages $2.3 billion in emerging markets and $300 million in Indian stocks as a director of equities at F&C Investment in London.

Financial firms worldwide have posted losses and writedowns of almost $1 trillion related to the collapse of the US subprime mortgage market and the credit contagion it triggered around the globe.