Timely repayment by NBFCs will help regain confidence, says Keki Mistry

Keki Mistry, vice chairman & CEO, Housing Development Finance Corporation (HDFC), spoke to Swati Khandelwal of Zee Business about growth drivers, loan composition and outlook of the company among others. Edited Excerpts:

HDFC's profit after tax rose almost 25% and net interest income grew 18%. What were the growth drivers?

Housing is a sector with a structural demand, and there are a variety of reasons for this demand. The first is related to the affordability of housing in India and you can compare it with the affordability levels 10-20 years ago. The main reason for that is over the period of time income levels have gone up faster than property prices, which has made housing more affordable. Secondly, the penetration level of housing is very low in India as the mortgage to GDP ratio stands just at 10%, while the same in the US, UK and China stands at 63%, 68% and 22% respectively. The third reason is associated with government's focus towards housing as it has provided different types of incentives in the sector such as fiscal benefits and subsidy scheme. It feels that giving a boost to the housing sector effectively will give a boost the core sectors in the economy, such as paint, cement, steel and power. The most important thing in my view is the age of the borrower. In India two-thirds of the population is below 35 years of age and an average age of a first-time buyer in India is about 38-39 years. This means that two-thirds of the population have not even thought of buying a house, but over the next three, five, 10 and 20 years, the youth will grow to an age where they will have to think of buying a house.

What is the composition of your loan book at present? Also, let us know about concerns related to corporate loans?

Corporate loans have gone down. As of September 30, about 73% of our loans were disbursed to individuals and 12% for construction finance. The loans to individuals and construction finance stood at 72% and 13% in the June quarter, respectively. Corporate loans stand at 6% and the remaining 9% is with lease rental discounting notes.

Have you developed a strategic focus on individuals?

Loans to individuals have gone up in past six months, there has been an incremental growth of 81%. That is a part of the strategy, and the fact is that the structural demand of housing has gone up and is the biggest area of growth. In addition, we have slowed down on developers and corporates.

What is the future outlook?

We have an outlook to grow in each of these segments. If you see the historical data of the last 3-5 years you will find that individual businesses never went down below 70%.

There is a talk of lack of liquidity in the market. Is the concern a genuine one?

We have heard that non-banking finance companies (NBFCs) will face a liquidity crunch. However, funds are available for strong companies. There is a flight to quality. Deposits are growing very well for us and we are also raising money through a variety of sources. We raise money through external commercial borrowings. masala bonds, deposits and debentures and bonds among others.

Can you elaborate the provisioning of HDFC as you have segregated more than Rs 2,000 crore for the purpose?

We are extremely conservative in our provisioning policy and have always provided more than what the regulation requires. As of September 30, 2018, we carry a provision which is Rs 2,120 crore higher compared to what is required by the regulation. Historically, we have been very conservative.

Do you have any direct exposure to IL&FS?

You can't say it as directly to IL&FS, but we have a loan of around Rs 390 crore to IL&FS and that is against rental discounting. We directly get the rentals from their property in BKC that comes largely through the third-party tenants. The rentals come as a repayment of the loans.

Can you talk about the reasons that gave birth to this concern over NBFCs?

The default at IL&FS turned up to be the reason for this concern, which gave rise to risk awareness in the market. This risk awareness got intensified over the last one month. Undoubtedly, 99% of the talk is just fake, but the market got carried away and started selling stakes. The biggest reason behind the problem of liquidity is the nervousness of people. Besides, there is a fair amount of commercial papers with NBFCs, which were borrowed from the mutual funds and are coming up for maturity in the next one to four weeks. Timely repayment on maturity will help the market regain its confidence. I feel, this is a short-lived concern and will continue to be in the process for next 2-4 weeks. The confidence will return back as soon as people will find that the NBFCs are able to honour their commitments.

New and retail investors are quite depressed...

You will have to face ups and downs while investing in the stock market. For that purpose, the retail investors should have patience and appetite to observe it, and the most important thing is that you need to hold it out and stay put.

Would you like to comment on the ongoing conflict between Reserve Bank of India (RBI) and the government?

I can't comment on it on the basis of press reports, but as HDFC we are getting liquidity.

RBI has advised banks to reduce their exposure in NBFCs and housing retail companies...

We never heard such a thing. In fact, the State Bank of India has said that we will buy a large quantity. In addition, we have seen that one of the housing finance companies has received a large loan from two banks, a private and the other is a public one. The information is based on public information.

What about your rural and urban spread?

A large part of our lending is in the outskirts of big cities. If you have a look at our average loan, then you will get that the average loan is Rs 26 lakh and it is spread in the distant outskirts of cities and in Tier-2 and 3 towns.

Indiabulls Housing Finance has increased its lending rates. Do you think that it is the right time to increase the rates and we can see a change in your rates in time to come?

In our case, we are not going to change our lending rates. But we are proactive and have responded to the increase in the cost by increasing lending rates. Our spread is stable and it remains the same as it was in June 2018, that is at 2.28%.

What is your outlook on NPAs?

It is difficult to say, but we will have to wait and see how it progresses.

What are your growth expectations this financial year?

We don't make advance projections on what and how the growth will be, but there is nothing today that will make us believe that it is going to hamper the growth that we have achieved in past 5-10 years.