Demand for housing sector will come back in medium term, says HDFC CEO Keki Mistry

Now, historically, whenever there has been any kind of stress in the market, NPLs tend to go up in short term, but once the stress get alleviated, NPLs come down to the normal levels.

By Ankur Mishra

Although Covid-19 will result in short-term challenges, HDFC vice-chairman and CEO Keki Mistry believes that demand for the housing sector will come back in the medium-term. In an interview with Ankur Mishra, Mistry said the demand for housing will increase further as more people would want to work from home after normalcy returns. Edited excerpts:

HDFC has managed to show 11% y-o-y growth in the loan book during the March quarter, but do you see Covid-19 impacting your business in coming quarters? Have you done any risk assessment?
Structurally, the demand for housing in India will always remain strong. Once normalcy comes back to the system, it is going to increase further, because more people want to work from home. When you work from home, you need larger houses. So, the demand for housing will come back. In short term, it will be a challenge, but in medium term, the demand will come back.

You have disclosed that 26% borrowers on an aggregate level have asked for moratorium. Do you believe more borrowers will avail this relief with the moratorium extension till August?
I neither see a reduction, nor an increase in the number of borrowers opting for moratorium. So, whoever wanted the moratorium, would have already asked for it.

Do you see those who have availed moratorium turning NPLs in the coming quarters?
The total 21% individuals and 26% on an aggregate level have opted for moratorium. Now, historically, whenever there has been any kind of stress in the market, NPLs tend to go up in short term, but once the stress get alleviated, NPLs come down to the normal levels. So, this time, the concern on Covid is a lot more than normal. Once normalcy comes back, NPLs will inch back to what it used to be before Covid. Having said that, in a very short term, for one or two quarters it is very difficult to say.

What has been the reason for the spike in NPLs in the March quarter?
Our NPLs are still very low at 1.99%. We have included two accounts in the NPLs, which are strictly ‘not’ non-performing as per the 90-day definition of the regulator. However, we have classified them NPLs. If we did not include these two accounts, then the NPL level would have been 1.7% and not 1.99%. The issue is very simple that in the last fortnight or a month, it was not possible to go and collect money from customers. More than 95% of our borrowers transact electronically but for little over 4% we have to contact them, meet them, which was not possible in the second half of the March. So, that caused the spike in NPLs.

The asset quality has particularly worsened more on the developer loans which shot up to 4.71% from 2.34%. Do you see NPLs spiking further in the coming quarters?
As I told you, it is very difficult to predict how situation is going to be in the second, third or fourth quarter. In long term, NPLs will come down to normal levels because the underlying security value is very high. NPLs are only the function of liquidity. If a developer is not able to sell his property, he does not have liquidity, he will default on payments or delay the payments, and therefore the loan will get classified as NPL. But, once the sale picks up, he will come back and pay.