The country’s largest mortgage financier, Housing Development and Finance Corporation (HDFC), is gearing up to enter a new phase of growth by diversifying into different sectors. Keki Mistry , vice chairman and CEO, shares HDFC’s future plans in an interview. Edited excerpts:
HDFC has recently announced plans to raise ₹13,000 crore capital from the market with an aim to diversify into health insurance and buying stressed real estate assets. What is the reason behind the decision at this juncture?
Over the years, we have created a lot of companies. We started banking in 1994, asset management business in 2002, life insurance in 2000; we started the general insurance business in 2004-05. Over the years, these businesses have become mature, and don’t need much of support. Some of them are listed, some of them will get listed over time. We have created businesses that have created value.
Now the only unlisted companies we have are Credila — the education finance business —HDFC Ergo and the property venture funds.
We have to create new businesses that will give us value 5-10 years from now. That is why we are foraying into two areas in financial services. Our core area is financial services and whatever we do, we will do in financial services.
One of things that we are looking actively is health insurance.
We think opportunities in health insurance in India are enormous. People in India are becoming extremely conscious about health. So, the opportunity for growth in health insurance is massive.
Now, you can do health insurance on a standalone, greenfield basis where you start a company and then it will take a very long time to grow into a sufficient size. If we want to get scale quickly then we have to buy an existing health insurance business. For which you need cash. We will enter into the health insurance business in some way connected with Munich Re, because we have a partnership with Munich Re on the general insurance side. Ergo is a wholly-owned subsidiary of Munich Re. So, we are looking at inorganic opportunity to enter into the health insurance space.
What kind of opportunity do you see in the stressed real estate market?
The other opportunity we are looking at is getting into some kind of foray in stressed real estate. We have a lot of expertise in housing. We understand the housing market all over the country. Over the years we have seen so many cases pan-India where there is some stress in real estate projects.
Now, with our knowledge of the property market we can approach that developer, acquire that project and get a good developer to complete and then brand it as an HDFC property and sell it in the market.
We won’t do that from HDFC directly because we will not expose the HDFC balance sheet and hence this will be done through a separate venture.
It is still in a formative stage … whether we will do it as a fund or in the form of a company — all that is still to be decided. Over the next six to twelve months we will make some foray into this area. These are the two areas where capital will be required.
What kind of opportunities do you see in the home loan segment? Will you be open to inorganic possibilities there too?
In the mortgage business itself we see tremendous growth opportunities. There is a thrust on housing by the government, fiscal benefits have been provided. Housing penetration in India is low while demographics are favourable. So, the housing market in India will grow at a rapid pace for a long period of time.
[To fuel] that growth, we will also need some amount of capital. There could be inorganic opportunities. There are opportunities but they come at a high price. We are not willing to pay those prices.
With the introduction of the Real Estate (Regulation and Development) Act or RERA, there was some impact on home loan demand as developers were not getting approvals. Have these issues been sorted out?
RERA is now behind us because people have adjusted to it. Of course, a couple of months after RERA was rolled out, there were some fears among developers about the process of registration taking time etc. but now I am not hearing any concern on that front.
Can smaller developers survive in the RERA era?
RERA could lead to some amount of consolidation. Some of the smaller developers may not [make] adjustments for RERA. So, there could be some amount of consolidation one could see in the real estate industry.
Do you see scope to cut interest rates? Or do you think interest rates should start going up now?
If you see, though some of the banks have increased their deposit rate, I don’t see lending rates going up. I see interest rates staying stable for the next few months. I also do not see RBI changing the interest rate in the next 4-5 months though the commentary might change depending on what data they get.
How has demand for home loans been in this year so far?
If you see our September numbers, we have seen good demand for housing loans. The disbursements have been strong.
On the commercial side — in the corporate loan segment, we have not seen any growth till September compared with March 2017. Lease rental discount is the second product in commercial loans and this segment has seen strong traction. More and more global entities like Blackstone and Brookfield are coming into India [and] acquiring leased properties. That demand is very strong. The third category of commercial lending is construction finance. Here we have also seen very strong demand. I think the incentives that the government has provided, particularly in the last budget, has boosted construction activity.
HDFC has recently joined hands with Abu Dhabi Investment Authority and committed more than $500 million by March to affordable and mid-income housing projects across India. What is the objective of this collaboration?
Our expertise is in real estate. Real estate has various elements: affordable housing, commercial, residential and stressed real estate. So, if a builder is constructing a large, affordable housing project and requires funding for buying the land for the project etc., then this fund will finance it. Our endeavour is to participate in the huge opportunity of affordable housing, which is a sunrise segment right now and for many years to come given the housing shortage in the country.
When are you planning to list HDFC ERGO?
It is a discussion we still have to have with our partner. At some point over the next 3-4 years, we will certainly bring it up with them. This calendar year, we plan to list the asset management company.
