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Housing has become more affordable: HDFC chief

Deeptha Rajkumar

Kurup

MUMBAI, Nov. 22

IT was a smooth and quiet succession at HDFC when Mr Keki Mistry, the new Managing Director of HDFC, took charge on November 14 following the departure of Mr Deepak Satwalekar to head HDFC group's insurance venture.

Mr Mistry has been with HDFC since 1981 and was groomed for the job. He was appointed Executive Director in 1993 and was elevated as Deputy Managing Director in 1999. Mr Mistry is a Fellow of the Institute of Chartered Accountants of India and is a membe r of the Michigan Association of Certified Public Accountants.

Mr Mistry spoke to Business Line on a wide range of issues concerning his company and the housing industry. Excerpts from the first of a two-part candid interview.

How have the sops for housing announced in the Budget impacted housing finance companies (HFCs) so far?

The sops for housing coupled with other factors have made housing more affordable than what it used to be. Today, the cost of a house is a multiple of 4-5 times of the annual income of a typical HDFC borrower. This multiple in the past used to be as high as 15-20 times. Meaning, earlier you needed 15-20 years' income to buy a house; today it just needs four to five years.

This has not happened as a direct result of the tax breaks alone. Property prices in India have come down by 20-50 per cent and even by 60 per cent in some parts of the country.

Besides, over the last five years, income levels of individuals have gone up while tax rates have come down.

That apart, interest rates which used to be as high as 16-17 per cent at one stage, are down to 13-14 per cent. Added to this are the incentives provided by the Government. For instance three years ago, the interest rate on a housing loan was tax deduct ible to the extent of Rs 15,000. And the limit was increased from 15,000 to Rs 30,000, to Rs 75,000 and this year to Rs 1 lakh. So up to a lakh of rupees you don't pay tax.

Affordable housing has led to a growth in individual business, which has been consistently 40-50 per cent year after year since 1987. For example in the first half of this year, we had a 55 per cent growth in individual loan approvals and 52 per cent gro wth in loan disbursements. Last year, our loan approvals had been higher by 49 per cent and disbursements by 50 per cent. And this is on a base figure which has been getting larger and larger.

What has been the market response to your adjustable rate/ flexible rate loans? What is the proportion vis-a-vis total loans?

A majority of people prefer a fixed rate loan. Of course, there are those who come to us asking for a floating rate loan. If you look at the balance sheet figure, our total loans outstanding are Rs 16,000 crore. On that base, around Rs 2,400 crore is on a floating basis. Everything else is on a fixed rate basis.

Yes, the market has been a little cautious. But it is also a function of where the rates are. If there is a perception that the rates are moving downwards, as it was six months ago, people will be willing to go in for a floating rate loan. But the last t hree months, or say from June onwards, it has been very volatile.

Interest rates are expected to be steady and may even marginally decrease in the short-term because of the SBI IMDs (India Millennium Deposits) expected to flow into the market. Otherwise rates have been very volatile. And in a volatile interest rate env ironment, people prefer to go in for a fixed rate loans.

HDFC frequently taps short-term bond market. Why?

You need certain amount of fixed rate funding or fixed tier funding. If you look at the balance sheet base of HDFC last year, the total base was around Rs 15,085 crore. But of that, we have Rs 2,096-odd crore which is networth and balance of around Rs 13 ,000-odd crore are borrowings.

Of the borrowings -- we have three categories. We have deposits, which are really retail deposits which constitute

48 per cent of our total borrowings. It is raised at the grassroot level from about 11 lakh individual depositors and period range from one year to up to a maximum of seven years.

Then we have eight-nine per cent of international borrowings which is all long-term ranging over 10 years, 15 years, 20 years and 25 year borrowings. This is the money raised from World Bank, US-AID, IFC, CDC, Asian Development Bank. Basically, money ra ised from multi-lateral, bilateral agencies.

The balance which is about 43 per cent is domestic borrowings. This has three components. The first being loans we draw from the banking sector. These are all floating rate loans priced at PLR with the banks. Typically, you draw money at quarter, half an d one per cent below the PLR.

This also includes the refinancing we draw from the NHB. They provide refinance depending on which kind of loan we need. This is the second part of the long term funding which we need.

The third category is bonds and debentures. Now we raise bonds and debentures in the market for one-year, three-year, five-year and seven-year money -- ie at different gaps. And as and when we see any sort of maturity gap, we plug that gap by going in fo r that kind of borrowing with the RBI. So effectively it is used as a tool to raise money at a fixed rate and to plug any maturity gap that may arise.

If you look at our liabilities, we have extremely well balanced assets and liabilities. We have virtually no maturity rate mismatch or interest rate mismatch. Whatever floating rates assets we have, we have floating rate liabilities to support those asse ts. All floating rate assets which we create have floating rate liabilities.

So if there is an upward and downward movement in interest rates we are unaffected. For instance in July most banks increased their PLR. Now, we have about Rs 2,400 crore borrowed from the banks, all of which are at floating rates. So when the bank incre ased their PLR, our borrowing cost went up by half per cent because banks increased their PLR by half per cent. So simultaneously we increased our floating rate loans by half per cent.

We are in the process of tapping the market and we will be issuing a mandate to this effect in say about two-three days. We are looking to raise roughly about Rs 150 crore through one year and other instruments, with a greenshoe option.

Last year, we disbursed around Rs 4,493 crore. This year we will be disbursing about Rs 5,500 crore. To do this one needs, apart from repayment of existing loans, to keep raising funds all the time. Our NPA currently is around 0.90 per cent. And of that 0.90, about 30 per cent of these are people who paying instalments to us every month. We classify these as NPAs because there are some installments overdue from these people.

Low NPAs are also due to fact that Indians are largely debt averse. We have about 6-8 per cent of our loans repaid ahead of schedule every year.

(to be continued)

Pic.: Mr Keki M. Mistry

Picture by Shashi Ashiwal