More money available but not necessarily at less cost: Keki Mistry

Interview with Vice Chairman & CEO, HDFC

The Securities and Exchange Board of India (Sebi) on Saturday allowed debt mutual funds an additional 10 per cent exposure in housing finance firms (HFCs). Keki Mistry, vice-chairman and chief exective officer of Housing Development Finance Corporation, says the relaxation allows funds to invest a potential Rs 48,000 crore in HFCs. Edited excerpts from an interview with Krishna Pophale:

What would be the impact of the Sebi guideline?
Sebi has created a separate window of investments for mutual funds. The total amount with debt funds is Rs 4,80,000 crore. So, the relaxation in exposure allows them to invest a potential Rs 48,000 crore in bonds, debentures and commercial paper (CP) issued by HFCs. It increases the availability of resources for HFCs but that does not necessarily reduce the cost. Cost is a function of market conditions. At the end of the day, MFs will invest the money where they get a better deal.

How does this (guideline) change the funding pattern for HFCs?
The yield curve was flat four to five months ago. Now, we are seeing a better steepness in the curve. You are getting short-term money at better rates. So, if you are borrowing short-term money from MFs, the borrowing cost will come down. HFCs do borrow some short-term money but we can’t do away with long-term money, as our assets are all long-term. Borrowing cost is a function of the interest rates. if they come down, the borrowing cost will come down but what this (guideline) does is, MFs can provide a potential Rs 48,000 crore to HFCs.

Will the guideline bring down your bank funding in relative terms?
In recent times, bank funding has been coming down. Our first quarter results reflect this trend quite clearly. Term loans have come down from March levels. This (guideline) will help that process.

How does the overall fund raising scenario get impacted by this relaxation?
MFs are generally short-term lenders. They don’t lend long term because the product itself is not a long-term product.

So, if you are borrowing for filling temporary gaps, you can go for something like CP. But CP has limits. You can’t raise a large amount of money, as there would be (asset-liability) mismatch. So, this relaxation helps us there.

Your expectation from the second quarter monetary policy?
It’s difficult to say when the Reserve Bank will cut rates. All along, it has been saying that we are waiting for the government to take some policy decisions. Now that the government has responded, RBI should logically reciprocate. But because these decisions have happened recently, RBI might choose to wait for another month. It’s difficult to say but interest rates in March will certainly be lower than what we have today.