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Individual loan demand strong despite fears of a slowdown: Keki Mistry, HDFC

Keki Mistry-HDFC-1200
Linking of benchmark with repo rate is a double-edged sword. As long as the rates keep coming down, things are hunky dory.
HDFC vice-chairman Keki Mistry is very selectively growing the developer loan segment despite mounting concerns over developer stress caused by poor credit flow and sluggish sales. In an interview with Shilpy Sinha, Mistry said that one-time restructuring of loans for real estate developers, easing of the end use of funds and easy availability of last mile funding will help th sector get out of crisis. Edited excerpts:

The individual loan segment has grown by 17%. Where is the demand coming from?
The demand for individual loans in the affordable housing category continued to remain strong despite fears of a slowdown. We have guided the market that we are cautious about growing non-individual loans. On incremental basis, 94% of growth is coming from individuals.

Other housing finance companies (HFCs) have slowed their growth. Are you benefiting from the slowdown? There is no limit to how fast we can grow. We have been prudent and continue to remain cautious. The growth has come from volume rather than from value. The average loan size has remained at ?27 lakh. Growth is coming from outskirts of (metro) cities, tier II and below cities.

Developer loans are under stress and require last mile funding. How do you grow in this segment?
There are so many projects that are 70-80% complete but are not getting last mile funding. There are many projects where last mile funding is possible because there is enough equity left but the regulations say if a project is non-performing in the books of one lender, then it continues to remain non-performing for any new lender even though the new money is completely ring fenced and safe. Nobody will lend to a project which is stuck and is an NPA in someone’s books. The new lender must classify it as non-performing. Because of lack of funding, these projects are stuck.

What should be done to ease the real estate situation?
What can be done is tweaking of the regulations that permit one-time restructuring, that will allow lenders to lend new money insofar as it is ring-fenced. Once the finer details of the government schemes are announced, funds should be available. Projects that require last mile funding must be able to avail of funds.

Banks have moved to repo-linked rates for home loans. Has the competition intensified?
Linking of benchmark with repo rate is a double-edged sword. As long as the rates keep coming down, things are hunky dory from customers’ point of view. But in any economy, rates that come down will have to start going up. It will create volatility for individual borrowers.

Have you changed your borrowing profile?
We have been very flexible with borrowing. Fixed deposit contributes to our borrowing over the last six months. Every month, the borrowing profile keeps changing. There are certain changes that will happen in the end use of funds. The finance minister had announced certain benefits for the real estate sector about easing of end use of funds for real estate. We are awaiting those guidelines from RBI. We will raise some international funding after the norms are announced. We have not done any foreign currency borrowing this year. Once RBI comes out with fresh guidelines on end use of money, we will go to the market and raise money.

Are you looking at a stake sale in any of the subsidiaries like HDFC Ergo?
HDFC Ergo will go for an IPO but not immediately. The merger of HDFC Ergo and Apollo Munich should conclude in the course of this financial year.
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