Our loan growth is almost entirely driven by retail loans: Keki Mistry

Interview with Vice-Chairman & CEO, HDFC

Keki Mistry, vice-chairman and chief executive officer of HDFC, says slow economic growth and the need to check deterioration in credit quality prompted the mortgage lender to bet on individual loans. In an interview with Somasroy Chakraborty, he says many of these originate from smaller towns and regions on the outskirts of big cities. Edited excerpts:

Your retail loans have grown at a fast pace. Is it a conscious strategy?

Our loan growth is almost entirely driven by retail loans. Individual loans accounted for 89 per cent of the incremental growth in our loan book during the nine months ending December. We have taken a conscious decision to focus on retail loans in the current economic environment. We are extremely careful about the quality of our portfolio. The growth in the individual loan book, after adding back loans sold, is 27 per cent compared to 21 per cent growth in the total loan book. Also, the growth in non-individual loans is linked to the economy. Since economic growth has slowed, the growth in non-individual loans has not been significant. But it is expected to improve as economic activities pick up.

From which regions are you witnessing strong demand for home loans?

Delhi-NCR, Chennai, Mumbai, Bangalore and Pune. But many of the loans in these centres are actually originating from peripheral regions. For instance, in Mumbai, we are seeing a good demand these loans from areas like Virar, Boisar and Nalasopara. It is not as high in areas like Bandra. Similarly, demand is also strong in small towns like Sangli and Satara.

Are you seeing any stress in your loan portfolio?

We are cautious in lending but these things do not come with a warning. So far, we have not seen stress building in our portfolio. Our non-performing loan (NPL) ratio was 0.77 per cent at the end of December, compared to 0.79 per cent a quarter before. NPLs of the individual portfolio stood at 0.57 per cent and of the non-individual portfolio at 1.18 per cent.

What is your outlook on spread?

In the third quarter, our spread was 2.28 per cent, compared to 2.20 per cent a quarter earlier. For now, we are sticking to our guidance of 2.15-2.35 per cent. It is difficult to say whether our spread will be in the lower or upper end of the guidance.

Do you expect a rate cut  in January?

My outlook on interest rates has not changed. I have been saying for a while that I don’t expect any cut in interest rates. I don't think RBI will cut in this quarter even if inflation starts declining. This is  because the US Fed’s tapering is expected to start and normally in February and March, there is a higher demand for credit. But I expect interest rates to start declining from April.