HDFC vice-chairman and chief executive officer Keki Mistry discusses second-quarter earnings with Manojit Saha and says the Reserve Bank of India may increase interest rates for the last time before it takes a pause.
What was the main driver for the profit growth in the July-September quarter?
The growth in profit is attributed to both loan growth and maintenance of spreads. The spreads for the six-month period stood at 2.29 per cent, which is a little lower than June numbers. But it is still in the ballpark number we talked about, which is between 2.2 per cent and 2.3 per cent. In the last financial year, the spread for the first six months was 2.32-2.33 per cent. One more factor which helped was the quantum of loan which we sold, for which we get income, that amount keeps increasing every year.
What was the loan growth excluding the loans sold?
Excluding the loans sold, loan growth was 19 per cent, as on end September.
The high interest rate seems to have not dented loan growth…
We are generally lending to middle-income groups. Our average loan size is Rs 19 lakh. People who buy the house for their own need will buy the house.
With the rise in interest rates, the high value loan market will be impacted the most.
The provisioning has increased in the quarter…
Provisioning has happened in accordance with the change in norms. For example, there was no provisioning requirement on standard assets. But we, as a matter of prudence, were always providing 0.10 per cent on standard assets. Now, the National Housing Bank (NHB) says housing finance companies have to provide 0.4 per cent. So, we are also providing 0.4 per cent. Similarly, for substandard assets the earlier mandate was to provide 10 per cent but we were providing 15 per cent. As NHB increases the mandate, we are providing 20 per cent on sub-standard assets. In every bucket we are providing a little more than what is required by regulations.
We have drawn Rs 255 crore, net of deferred tax, from the additional reserve created under Section 29C of the NHB Act. The rest is the regular provisioning which comes from the profit and loss account.
Do you have to make higher provisioning for the fixed-cum-floating loan rate scheme launched in September?
We don’t think we need to make higher provisioning for those loans for the simple reason that the definition of the teaser loan rate does not apply because the fixed rate component is a higher rate than the floating rate loan.
What kind of response you have seen on this scheme?
It is still early days. About 10-15 per cent of the approvals fall in the category.
The capital adequacy ratio is at 13.8 per cent, higher than the regulatory requirement of 12 per cent. Do you have plans to raise capital?
We are comfortable with the level of capital to support our growth and have no immediate plans to raise capital.
When are you planning to list the life insurance arm?
Nothing will happen in the current financial year. We will take a fresh look in the next financial year.
What is your expectation from RBI’s policy review scheduled on October 25?
My personal expectation is that RBI will increase rate by 25 basis points. I think it will be the last increase.