HDFC spurns investors asking for loan push

Housing Development Finance Corporation (HDFC), the country's oldest mortgage lender, has turned down an advice by its biggest institutional shareholder to grow aggressively.

Chairman Deepak Parekh said the shareholder wanted HDFC to be comfortable with higher non-performing loans (NPAs) and grow at 65-70 per cent.
 

SLOW & STEADY
(Rs crore)	Nine months ended
	Dec 2005	Dec 2006
Income from operations	3029.72	4147.03
Other income	8.77	16.28
Interest & other charges	1813.81	2662.61
Staff expenses	64.50	69.92
Gross profit	1057.37	1303.97
Net profit	830.78	1020.33

Parekh did not name the institutional shareholder, which had suggested a change in the way HDFC approaches its business. The US-based Citigroup is the largest shareholder in HDFC with 12.25 per cent stake. The next large institutional shareholders include CLSA Merchant Bankers with 4.98 per cent stake and Calyon with 3.51 per cent holding.

HDFC Bank has been growing its loans book at a steady rate of around 25 per cent for the last few years and has maintained its net non-performing loans (NPLs) at around 0.50 per cent.

Parekh said the shareholder wants HDFC to take more risks and should not be averse to allowing net NPAs rise to around 1 per cent from around 0.50 per cent now. "We can grow at 65-70 per cent. We are too cautious, low key and need to be more aggressive," was the advise of the shareholder to HDFC, Parekh said.

"We are not going to accept the large shareholder's view. If (our pace of growth) not acceptable, they can sell. We will not change our operating standards," he said, in his address on relationship between good governance and good performance, hosted by the Confederation of Indian Industry (CII).

Parekh said growing faster has other risks associated with it.

HDFC's outstanding loan portfolio has grown by more than three times from Rs 13,224.6 crore as of March 2001to Rs 44,990.12 crore at the end of March 2006. Its home loan portfolio at the end of December 2006 had grown to Rs 52,749 crore.

To hike home loan rate 0.5-1%

Home loans from Housing Development Finance Corporation (HDFC) are likely to become dearer by 50-100 basis points, or 0.5-1 per cent, as the mortgage lender is expected to pass on the rise in fund costs to customers later this week. The corporation was looking at the impact of higher cost of borrowing, and the extent of hike could be half to one percentage point, Chairman Deepak Parekh told reporters after speaking on corporate governance here. The bank would take a decision this week, he added.

The expected upward revision will be the fourth by HDFC in the current financial year. The last one (of 50 basis points) was done on January 1 this year. Most commercial banks have already raised their PLRs (prime lending rates), to which their home loan rates are linked.

Analysts said the hike will help HDFC protect its margins. The bank's spread on loans was 2.16 per cent in 2005-06, down from 2.17 per cent in 2004-05 and 2.20 per cent in 2003-04. HDFC's cost of funds at the end of March 2006 was 6.5 per cent.

Commenting on rising real estate prices and demand, Parekh said, "Investors will go out of the market any way because real estate prices have shot up significantly. They have better options of saving money in bank deposits, where rates are rising, or in mutual funds, which can give higher tax-free returns. So to that extent the market will soften."

"Home loan demand from those who genuinely want to buy houses and live in them will continue, as even when rates of interests were higher at 14-15 per cent, HDFC was still growing by 25 per cent," he said.