Loan disbursements to come over a period of time and not upfront: Keki Mistry

"Now the period from 2017 to 2020 was a period when there was stress in the real estate sector and consequent to that stress, there were not too many new projects that were launched," says Keki Mistry, VC & MD, HDFC.

Your AUM growth has come in at 13% per cent, which is slightly lower than what we expect of HDFC. Is that a conscious call or non-individual non-growing?
When we target loan book growth, we always target individual loan book growth. If we were to see now, our individual loan book growth has been over 18%, I think it is 18.3% or 18.4%.

Non-individual loan book comprises mainly of three components -- corporate loans, construction finance loans and LRD loans. Now in those three segments, construction finance is the largest segment. Now in construction finance loans, what is important to understand is that the disbursement is linked to construction. Now, when a developer launches a project in a city like Mumbai or Delhi or Bangalore any of the big cities, these are usually large projects. And these large projects take four-five years to complete. So the disbursement starts maybe one or two years after the loan was approved because by that time all his other approvals are received, he puts in his own contribution and then he starts disbursement.

So disbursements always tend to be back-ended and never front-ended. Now the period from 2017 to 2020 was a period when there was stress in the real estate sector and consequent to that stress, there were not too many new projects that were launched. What we would otherwise be dispersing now typically would have been projects which were launched in 2018 or 2019 or 2020 when project launches were very-very slow. Post 2020, post the second half of 2020, the real estate sector has really picked up, demand has increased significantly and a number of new projects have started getting launched. So 2021, 2022 saw a fairly large number of new projects coming. Now so the pipeline is healthy but the disbursement for these loans will only come over a period of time and not upfront. But individuals is what we have been targeting and there our historical target what we tell investors is 12% to 18% growth. We grew higher than the 18% target, marginally higher, about 18.3%, 18.4% growth, which is higher than the system growth. The system growth based on the RBI numbers which I think came out couple of days ago is about 16.1% or 16.2% and we grew 18.3%, 18.4%.


Now there is obviously a lag between your asset and liability repricing. So going forward, how should one look at the timing of the unwinding and also with the RBI policy coming up, do you think we can see interest rates inch up, what is your outlook in terms of where you see rates headed?
Alright, so whenever interest rates increase or decrease, the liabilities increase or decrease immediately. We also increased the PLR or what we call the retail prime lending rate, which is applicable to individual loans. But the agreement that we have with individual customers up to very recently said that the interest rate resets once in three months.

So it is not every month that the rate resets. If you had taken a loan, for example, in the month of January, the rates will reset in January, April, July, October, and so on and so forth. So if a rate change happens, let us say in the month of November, then it will be applicable to you only in January. So effectively what it means is there is a three-month period by which the entire interest rate increase or decrease gets filtered into the system. So if there is no further increase in interest rates going forward, then you start seeing the upward movement in the yields. But if again there is a rate hike, again it will take that two months, three months for the yields to settle.

My personal view is that inflation is now pretty much under control. Globally also we have seen that oil prices have corrected quite a bit. So given all of that, my sense is we will not need to do too much too aggressive interest rate hikes going forward. And in my personal view, 90% to 95% of the rate hikes that could have happened have already happened. And I would personally see maybe another quarter percent increase in interest rates as a possibility, but not much more than that.