India’s largest mortgage lender, Housing Development Finance Company (HDFC), has turned in a good set of numbers for the December 2010 quarter. While growing the loan book by 27% year-on-year, the firm managed to bring down non-performing loans for the 24th consecutive quarter to 0.85%. Given its strong capital adequacy of 14%, Keki Mistry, vice chairman and CEO, HDFC tells The Financial Express that although interest rates are rising, the underlying demand for housing remains strong and therefore, HDFC is targetting a loan growth of 20-25% next year.
With interest rates rising what could be the impact on net interest margins?
Our net interest margin for the nine months to December has been 4.4 %. However, in the context of rising interest rates, we prefer to focus on our spreads, which have come in at 2.33% for the December quarter, in the September quarter they were at 2.34%. We should be able to maintain our spreads at these levels.
Do you see demand for loans getting impacted by higher interest rates?
The underlying demand for housing loans has remained strong so if interest rates rise by even another 25-50 basis points, over the 75 basis points in December, demand should not get hurt. Home loan rates were at 11% a couple of years back so if they head up to those levels, it is unlikely to hurt demand. Yields too should not suffer. Of course our loans to the construction sector have come off and these attract yields of 13-14% which is about 300 basis points higher than yields from individuals, but then the risks in lending to companies is far higher.
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