Interview: Keki Mistry, vice-chairman & CEO, HDFC
By Sonal Sachdev and Shritama Bose
HDFC has been in the news for its big fund raise. Shritama Bose and Sonal Sachdev spoke with vice-chairman & CEO, Keki Mistry on issues ranging from the traction in affordable housing loans to the company’s acquisition plans to its forays into health insurance and education and the likely impact of rising interest rates on the company’s cost of funds. Excerpts:
Has 2017 been a tough year, also due to RERA?
I don’t think it’s been a bad year. I think people have got adjusted now to RERA. The first couple of months when RERA was introduced were times when smaller builders were facing difficulty, but I think over a period of time, most people seem to have got used to it. I wouldn’t say 2017 has been a bad year. If I look at the numbers up to September — I don’t want to get into quarterly numbers – we had a decent growth. Our disbursement growth was actually pretty strong.
What traction have you seen in Credit-Linked Subsidy Scheme (CLSS) loans?
We are seeing good traction. Only the condition, that one should not be owning any other property is a bit of a constraint.
What share of your individual loan portfolio do such loans account for?
It’ll be somewhere in the range of around 20-25%. However It is gaining traction as it is only recently that the size of the property under MIG I and MIG II was increased.
Do you think interest rates are going to go up from here?
I don’t see interest rates going down any further and I had said this even six months ago that my view is that interest rates have bottomed out. I still believe interest rates will remain at these levels. I mean, five or 10 basis points up or down can always happen, but no big-bang reduction or increase in interest rates will happen at least in the next six months. Beyond the next six months, we’ll have to wait and see.
With yields hardening significantly, do you see your cost of borrowing jumping?
You see, yields are hardening compared to what they were four months ago, but if you compare it to where rates were in, say, July of 2016, rates are still 1 percentage point lower. It’s just that they came down so much and from those very low levels that they have risen. Take the example of a masala bond. We did the first masala bond in July 2016 and that was at 8.3% semi-annualised. The last masala bond issue, which we did three weeks ago, was done at 7.15% annualised. So rates have come down.
So now when you hit the markets, do you expect rates to be higher?
May be 5-10 bps higher than what we got recently.
You have said that you are open to inorganic avenues of growth in the affordable housing space. What kind of options are you looking at?
Inorganic growth is acquisition opportunities. Are there any in the market today? Maybe there are, but the valuations may not justify it. This is largely in the HFC (housing finance company) space. So an HFC or NBFC (non-banking finance company) which is into housing is what we look at, but not at current valuations. There are a couple of assets, but the valuations don’t make sense. If the valuations were to come down and make sense, we’d be happy to look at it.
Do you have a significant exposure to the loan against property (LAP) market?
LAP is about 4% of our total lending. We haven’t been able to grow the LAP book as much as we would have loved to.
Would you like to expand that book?
If we were able to get the kind of quality of loans that we look at, then we would like it to be higher. A LAP loan, the way it is understood in the market, is that a loan is given against a property and you don’t look at the repayment capacity of the individual because you have the property as the mortgage. We don’t do that kind of lending. We do not do asset-backed lending. We do income-backed lending, with the asset acting as a collateral. So the reason our LAP book hasn’t grown much is because we look at the repayment capacity of the individual. Therefore, we end up picking the safest kind of borrowers who will not pay a very high rate.
Is the IPO of HDFC Mutual Fund round the corner?
Maybe not in the next two-three months, but certainly in calendar 2018. My sense is April is probably the time when we are targeting. It could be a month earlier or later.