interview | paresh sukthankar Business

‘We may be in for a bit of a pause on rates’

Factors driving down interest rates have reversed, says HDFC Bank’s Sukthankar

With the Reserve Bank of India’s (RBI) monetary policy review expected in early December, Paresh Sukthankar, deputy managing director, HDFC Bank, said interest rates could be in the pause mode for some time. Excerpts from an interview:

Last week, the government promulgated an ordinance to bar defaulting promoters from participating in the liquidation process? Your view?

It is a right thing. There will be people who will say that keeping existing promoters out could impact best price realisation because en existing promoter may be able to give the best price, leverage the asset best. But, I still feel, purely on moral grounds, and governance ground….if somebody knows he is not doing well and if he negotiates with the bank and he may not get the kind of haircuts he wants, he will drag the company to insolvency and then, through that door, he will buy back the asset … which will be a complete shame.

How many HDFC Bank’s accounts are there in the two lists of companies that RBI has suggested for bankruptcy proceedings?

We had one account in the first list which we had classified as NPA long back. We have couple of more names [in the second list]. We have classified that as NPA long back. So, from a provisioning perspective, we have no impact. In all these cases, we have a relatively smaller exposure.

Do you see an opportunity for HDFC Bank in consumer durable lending — a sector better served by non-banking finance companies?

From our point view, we are the largest retail lender. And our focus has been that we have a complete product range.

Consumer durable finance can be made by credit cards which can be converted into EMIs.

So, effectively, we have been in this business for a long time.

From our point of view, we now do some consumer durable finance. It is to ensure our product range is exhaustive, and now, we are catering in both the card route as well as normal instalment route.

How big is the portfolio?

The portfolio is still small, but it is growing.

Again, given our overall size and given that these are short duration loans, it is not going to be a large part of our loan book. It is not something that will change the needle.

Retail lending is more than half of your loan book. Where do you see it going ahead?

Retail loans are 54% of the overall book. We don’t have a set percentage that we want to maintain, because we are well positioned in both wholesale and retail. So, whether one is growing a little faster than the other does not trouble us. Retail is growing fast because of not we want it to grow faster, because that is where the demand is. It is the real economy that creates the demand, a bank just mirrors that.

But HDFC Bank is known as a retail-focused bank…

If you look at the economy, 60% of India’s GDP is domestic consumption. Now, if you are saying 60% of the economy is consumption and you want to have 60% of your loans as term loans then there will a disconnect between your bank balance sheet and the real economy. Because larger amount of money is chasing smaller part of the growth of the economy.

On the liability side we are a very substantially a retail focused bank.

Most of the deposits comes from retail. So far as loans are concerned, we are equally strong in retail and corporate, our loan book is almost half and half. If we are primarily a retail bank, our loan book would have been 80:20 or 70:30, but that is not the case.

And we want to maintain a balance. In maintaining of that balance, which will grow a little faster and which will grow a little slower will depend on underlying factors.

Do you have any concerns on the unsecured portfolio?

At this point, no. In this credit cycle, that is the last 4-5 years, the unsecured portfolios behaved very very stable. In fact, in the last three years, in retail lending if there was any bit of increase in NPAs, it was products like commercial vehicle loans, construction equipment loans etc [secured loans]. Having said that, intrinsically unsecured loans do have a higher expected loss which is what you price in.

Do you think we are at the end of the rate-easing cycle?

I think we are in for a bit of a pause. Some of the major factors which were driving down rates have reversed. Recent inflation numbers suggest we are off the bottom. Oil prices have gone up. That is a major determinant of monetary policy. Secondly, if you look at the liquidity, the excess liquidity is gradually gone. If you look at these factors they are not supportive of further easing of rates. At the same time, I don’t think anybody will be comfortable with rates moving up either.

You see further scope for HDFC Bank to revise marginal cost of funds based lending rate (MCLR) — the benchmark rate for all loans?

MCLR will move in line with what happens to deposit rates.

If larger part of deposit rate cycle is through, because fixed deposit rates are not coming down any further, then [there is] not much scope for MCLR to come down.

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Printable version | Apr 3, 2020 3:28:15 AM |

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