Demand for home loans sturdy
India’s largest mortgage lender, HDFC, has turned in a good set of numbers for the December 2010 quarter. While growing the loan book by 27% year-on-year, the firm managed to bring down non-performing loans for the 24 th consecutive quarter to 0.85%. Given its strong capital adequacy of 14%, Keki Mistry, vice chairman and CEO, HDFC tells The Financial Express that although interest rates are rising, the underlying demand for housing remains strong and therefore, HDFC is targetting a loan growth of 20-25% next year.
With interest rates raising what could be the impact on net interest margins?
Our net interest margin for the nine months to December has been 4.4 %. However, in the context of rising interest rates, we prefer to focus on our spreads, which have come in at 2.33% for the December quarter, in the September quarter they were at 2.34%. We should be able to maintain our spreads at these levels.
Do you see demand for loans getting impacted by higher interest rates?
The underlying demand for home loan has remained strong so if interest rates rise by even another 25-50 basis points, over the 75 basis points in December, demand should not get hurt. Home loan rates were at 11% a couple of years back so if they head up to those levels, it is unlikely to hurt demand. Yields too should not suffer. Of course our loans to the construction sector have come off and these attract yields of 13-14% which is about 300 basis points higher than yields from individuals, but then the risks in lending to companies is far higher.
How will the cost of borrowings be impacted in a rising interest rate scenario?
At the margin, our cost of borrowings is now 9%. Right now, around 40% of our borrowings come from bonds, about 33% from bank loans and the rest from retail deposits. Over the past few months, banks have upped their base rates by about 200 basis points and since we were borrowing at the base rate, our costs too have risen by that amount. Today it is cheaper to borrow through retail deposits so if the base rates go up further; we will issue bonds or tap retail investors. We are looking to end 2010-11 with borrowings of Rs 25,000 crore and a similar amount in the following year.
How fast will HDFC grow next year?
Since the demand remain strong and prices have risen steeply only in some pockets like South Mumbai, we believe a disbursements target of 20-25% is reasonable. The average ticket size has remained fairly flat over the last year or so at Rs 18 lac and the demand is pretty much even across the country. Moreover, the average loan to value ratio for us is about 64% though of course, we now have a cap of 80% after the change in NHB’s rules.
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