New Delhi: In an interview with , Keki Mistry, Vice Chairman & CEO, HDFC Ltd said that the demand for homes will pick up when the lockdown is over and confidence in the economy is restored.
As lockdown measures are easing in many parts of the country, there have been incremental improvements in the disbursement level, which is a positive sign, Mistry added.
Mistry said that as work from home becomes more relevent, demand for larger spaces will increase. “In fact, housing will now have another benefit — because now people will be working from home more often, the demand for homes with larger spaces will only increase over the long-term”, he said.
“As regards housing finance, my experience has shown that housing has proved to be inelastic to interest rates or slowdown in the Indian economy,” Mistry said giving the examples or earlier crises.
On the economy, Mistry said the key focus should be to revive the sentiments to kickstart the Indian economy. One of the solutions is to first identify the sectors which have been most affected by the pandemic and which are also substantial employment creators. The RBI can then allow a one-time restructuring of loans for these sectors such as hospitality, airline and real estate, Mistry said.
“An area which we have started to focus on intently due to Covid-19 is digitization. We have created a special team to bring in new perspectives and strategies related to IT and digitization. Senior management is in constant touch with the board regarding the steps we are taking in handling the Covid-19 crisis and how we are managing our current and long-term risks,” Mistry said explaining the strategy of HDFC Limited.
Q: Analysts have pointed that the real estate sector has been the most impacted due to the Covid-19 crisis and pressure will trickle down to entities including finance companies. HDFC is the strongest in the sector, what will be the strategy to sustain growth?
A: Due to the unprecedented circumstances, a number of sectors apart from the real estate sector have been affected. I would like to point out that several sectors were under stress prior to the pandemic and the crisis has exacerbated the stress these sectors are undergoing.
As regards HDFC, the demand for homes will pick up when the lockdown is over and confidence in the economy is restored. Specifically, disbursements slowed down from the last fortnight of March (which is a crucial period) due to the disruptions caused by the national lockdown.
I am optimistic about the future of the housing sector as demand for housing is immense. The mortgage to GDP is extremely low at 10 per cent. Housing is a basic necessity and not a luxury. Most middle-income people who are taking loans to buy a house are genuine end-users and intend to stay in the house. In fact, housing will now have another benefit — because now people will be working from home more often, the demand for homes with larger spaces will only increase over the long-term. The rise of nuclear families will also add to the demand.
One must not forget that structural demand for housing for India will always be strong due to factors such as improved affordability, government’s thrust on affordable housing, favourable demographics, increasing urbanization and rising aspirations.
Q: With interest rates dropping sharply, lending is not picking up much while the deposit r ates are going down threatening the security needed from interest income in a volatile and uncertain environment such as now. What is your view?
A: Bank credit is not picking up as there is risk averseness in the system. The RBI has done a commendable job in continuing with its accommodative stance and introducing regulatory measures to revive the economy. In my opinion, the overarching concern is not interest rates but preventing job losses and creating new ones.
The key focus should be to revive the sentiments to kickstart the Indian economy. The restructuring will allow the banks to shed their reluctance, thus stimulating confidence in the economy and allowing these sectors to come back strongly, which will then catalyse the creation of jobs. In the real estate sector, the one-time restructuring will help developers complete residential projects which have been stuck because of last mile funding issues or working capital constraints.
Q: What is the post lockdown growth strategy for HDFC? What will be the tweaks required from earlier?
A: Coming to HDFC’s core principles, some of our mantras or objectives have been (i) stable spreads through asset-liability management; (ii) maintaining asset quality; (iii) achieving operational efficiency; (iv) profitability and (v) quality customer service.
We have always believed and will continue to focus on prudent lending – there is no substitute for prudent lending. When you are in the business of lending e by sacrificing margins or appraisal norms you can capture all the market share you want. However, this type of approach will not lend to sustained long term success.
An area which we have started to focus on intently due to Covid-19 is digitisation. We have created a special team to bring in new perspectives and strategies related to IT and digitisation. Senior management is in constant touch with the board regarding the steps we are taking in handling the Covid-19 crisis and how we are managing our current and long-term risks.
Q: How does HDFC see the emerging picture on housing loans given the pandemic?
A: Over the past decade, India has endured several crises. The common thread was that it created an atmosphere of risk aversion but regulatory measures and the inherent strength of the Indian economy with its strong fundamentals has led to recovery. India has proved to be a resilient economy.
As regards housing finance, my experience has shown that housing has proved to be inelastic to interest rates or slowdown in the Indian economy. In the current scenario, most homebuyers will adopt a wait and watch stance till the situation tends towards normalcy. I then expect the pent-up demand to unfurl with homebuyers showing strong inclinations to purchasing a house. Housing finance remains insatiable in a country like India.