ET Now Mar 21, 2014, 05.45PM IST | Economic Times
In an interview with ET Now, Paresh Sukthankar, Deputy Managing Director, HDFC Bank, shares his business outlook and his expectations from the upcoming RBI policy. Excerpts:
ET Now: Give us your sense of how you read the evolving macro dynamics and from the bank’s point of view, are you seeing any pick up in corporate credit demand?
Paresh Sukthankar: The markets have been getting more positive and euphoric, but on the ground, I would say that people are a little more cautious. Things have stopped getting worse and in a sense, they have plateaued or have bottomed out.
But it is fair to expect that a pick up should happen only as the investment cycle improves and that will happen not just immediately post elections, but maybe during the 6 to 12 months thereafter.
ET Now: A number of external risks also seem to have resurfaced, especially on the geopolitical front. The Fed has moved on expected lines, but global uncertainty remains. Do you see a significant impact of global headwinds on the Indian economy?
Paresh Sukthankar: Not, really. There may be some impact on the markets, in terms of flows, but if you look at the real economy or even the banking system itself, they are going to be driven much more by what happens domestically.
A good monsoon, a slightly better agricultural output and the fact that the consumption engine will start to largely hold up may cause the economy to look up this year. There is usually some consumption spurt linked to even election-related expenditure. Most of that has pretty much panned out. However, it will take some more time for the investment cycle to pick up.
ET Now: So what is the credit growth for HDFC Bank for the fourth quarter looking like? Will it be retail or corporate credit that will drive your growth this quarter?
Paresh Sukthankar: Generally speaking, if I look at the demand between retail and wholesale in the last few quarters, that should not have really changed now either. It has been more or less on an even key.
We have had a couple of quarters where the retail side marginally outpaced the wholesale lending, but in the December quarter, we had actually had the wholesale loan growth slightly outpace retail. So both are chugging along reasonably well, but this is not specific to a particular quarter and certainly not this one.
ET Now: Do you believe that the RBI governor may look at giving growth a push by cutting rates on April 1, now that the CPI inflation is closer to its glide path?
Paresh Sukthankar: Well, I do not think a rate cut is on the cards. The rate pause is probably a reasonable expectation. In any case, the RBI has said repeatedly that there is no trade off between inflation management and growth and that in the medium to long term, their focus would be on managing inflation. That is what is required to create an environment which is supportive to growth.
But on the rate front, in the immediate short term, clearly because there has been tightness in the money markets post the tax payments, there has been a slight hardening of rates.
I must say that the typical March phenomenon this year has probably not been as acute as it had been in the previous years. So while you have seen a slight pick-up in interest rates, it has not been as intense as in the past. But generally speaking, at this point of time, it is fair to believe that rates will remain reasonably flat.
ET Now: What is your sense on cost of funds for the bank this quarter? Give us a sense of the levels that one can expect for your NIMs, for this quarter?
Paresh Sukthankar: Well, like I said, the interest rate movement on the deposit side has not been meaningful enough to make an impact on margins. Our margins again in the last few quarters have moved 10 bps in each direction and they have remained in the classical range that we have had, which has been somewhere between 4.1% and 4.3%. I do not see margins moving out of that range at all, right now.
ET Now: So give us a sense of the size of your unsecured retail lending book. Some brokerages have highlighted the asset quality of this book as a key risk. What is your take on this?
Paresh Sukthankar: To be fair, the personal loans business, or the unsecured loan business, used to be about 13% of the retail loan book about a year back. It is about 14% of the retail loan book today. So it really has not changed unless you are looking at decimal points.
On the asset quality front, it has remained extremely stable. We have found that in this entire cycle, even as the economy has slowed down and while there has probably been some increase in delinquency in a couple of secured products, surprisingly the unsecured loan portfolio and the card portfolio have really held up fairly well.
A large part of that portfolio relates to loans or cards issued to our internal customers and both in terms of delinquencies and losses, the portfolio quality has been fairly stable.
ET Now: Are you seeing any signs of stress as far as asset quality is concerned, whether on the retail side or on the corporate side?
Paresh Sukthankar: Not really. Again, it will be fair to say that over the next few months things should stabilise as far as overall asset quality is concerned, before they start to look better.
But right now, I cannot say that there has really been any change. From our point of view, asset quality, on an overall basis, has also held up reasonably well and if you look at it vis-a-vis a year and a year-and-a-half back, our total NPLs have really not moved by more than 10 or 12 bps.
So our portfolio quality both in terms of NPLs and restructured loans has been roughly stable and I am not guiding towards a particular number for this quarter. The environment, like I said earlier, is not getting sharply better, but things have stabilised. So hopefully, that should support the asset quality at some point of time.
ET Now: There is a lot of interest in the market over your application to the FIPB to raise the FII limit. What is the status on that and what happens if the approval does not come through?
Paresh Sukthankar: Well, we have not unfortunately heard anything specific on where it stands. We are still awaiting the approvals. We have made our submissions. I guess from the market’s point of view, till the FIPB approval comes through and the entire approval process is done, there will be no incremental foreign investment that can be made in the shares. I guess it is of interest to the markets. We expect an approval, but we will have to wait for what comes through ultimately from the FIPB.
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