Cautious about growing HDFC's non-individual loan book: CEO Keki Mistry

Keki Mistry, vice-chairman and CEO, Housing Development and Finance Corporation (HDFC)
On the back of income from sale of investment, dividend and reduction in tax rate, HDFC Ltd reported healthy numbers for the quarter ended September 2019. Even though the asset quality continued to remain broadly steady, Keki Mistry, VC & CEO, HDFC Ltd told Nidhi Rai that the housing financier is cautious about growing the non-individual loan book and linking lending rates to external benchmarks could be very risky.

What is the corporate loan book looking like and what is the outlook?

We have always said that we look at our business in two separate segments, one is individuals where we target steady and stable growth over the years, and other is non-individuals loan book where the business is a lot more volatile. Also, we have told the market that we are cautious of the non-individual loan book and we will remain very cautious. That’s the way we have been from last four quarters. From April to September 2019, 94 per cent of new loans have been to individuals and only 6 per cent have been to non-individuals. So, for individual loans, I will say the business is as usual, but for the non-individuals the scope to grow and demand is very high but we are cautious and we continue to remain cautious.

There was a small uptick in gross non performing loans (gross NPLs). Do you see any pressure on the assets quality going forward?

NPLs went up by four basis points from 1.29 per cent to 1.33 per cent sequentially so it is not any significant increase. Non performing loans are not in our control because it is a very technical definition. If the borrower is not able to pay any instalments, technically the loan becomes non performing. We can be very prudent with our lending which we already are. We can take extra security and secure our loans as much as we can, which we are already doing and we can be very conservative in our provisioning. The provisions are at Rs 7,313 crore. We are carrying provisions, which are double the regulatory requirement.

It will be very difficult for me to tell you that whether in the next quarter the NPL will go up or not. But, yes I can tell you that our provision cover is very adequate.

How has the external benchmarking impacted the business?

I can say that linking the lending rates to external benchmarking can be risky in its own way because as long as rates remain low or rates come down, the customer will be benefited. But, the rates which are going down will also go up. Whenever the rates go back up, the impact will be felt by the customers.

What are your views on the current non-banking finance companies (NBFCs) and housing finance companies (HFCs) status?

I think a lot of NBFCs are still struggling for liquidity and have been meeting the liability requirement by selling loans. So, they are selling loans and raising money and using that money to pay off liabilities. I would say it is no longer the problem of liquidity, there is enough liquidity in the market. It is now more the case of risk aversion and because of it there is reluctance on the part of lenders.

What do you think we need to do going forward to bring the lender’s confidence back?

We need to remove the risk aversion which is in the market. If the banks start feeling convinced that they can lend money to NBFCs and it is safe. Reserve Bank India (RBI) probably can talk to the public sector bankers and give them the confidence that the regulatory framework has been strengthened.

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