The market regulator on Saturday allowed debt mutual funds an additional 10 per cent exposure in housing finance firms (HFCs). Keki Mistry, vice chairman and CEO of HDFC, says the relaxation allows funds to invest a potential Rs 48,000 crore in HFCs. Excerpts from an interview with Krishna Pophale:
What would be the impact of the Sebi guideline?
Sebi has created a separate window of investments for mutual funds. The total amount, which is lying with debt funds is Rs 4,80,000 crore. So the relaxation in exposure allows them to invest a potential Rs 48,000 crore to invest in bonds, debentures and commercial papers (CPs) issued by housing finance companies (HFCs). It increases the availability of resources for HFCs, but that does not necessarily reduce the cost. Cost is the function of market conditions. At the end of the day, mutual funds will invest the money where they get a better deal.
How does this (guideline) change the funding pattern for HFCs?
If you look at the yield curve, it was flat four to five months ago. Now we are seeing a better steepness in yield curve. You are getting short term money at better rates. So if you are borrowing short term money from mutual funds then the borrowing cost will come down. HFCs do borrow some amount of short-term money, but we can’t do away with long-term money as our assets are all long-term. So definitely the borrowing cost is the function of the interest rates. if they come down the borrowing cost will come down, but what this (guidelines) does is mutual funds can provide a potential Rs 48,000 crore to HFCs.
Will the guidelines bring down your bank funding in relative terms?
In recent times, the bank funding has been coming down. Our first quarter results reflect this trend quite clearly. Term loans have come down from March levels. This (guidelines) will help that process.
How does the overall fund raising scenario get impacted by this relaxation?
Mutual funds are generally short-term lenders. They don’t lend long-term because the product itself is not a long-term product. So if you are borrowing for filling temporary gaps, you can go for something like CPs. But CPs have limit. You can’t raise a large amount of money as there would be (asset liability) mismatch. So this relaxation helps us there.
Your expectation from the second quarter monetary policy?
It’s difficult to say when RBI will cut rates, but in my personal view, RBI has all along been saying that we are waiting for the government to take some policy decisions. Now that the government has responded, logically RBI should also reciprocate. But because these decisions have happened recently, RBI may choose to wait for another month, it’s difficult to say but interest rates in March will certainly be lower than what we have today.
