Boost to housing sector can create job opportunities: Keki Mistry

Job creation, rural economy and financial inclusion and getting more people in the tax net are going to be the three broad focus areas of the Budget 2019, says HDFC vice chairman and CEO Keki Mistry. In an interview with Swati Khandelwal, Mistry says NBFC is facing two issues and they are a liquidity issue, which has been solved out, and secondly risk aversion, under which the banks are reluctant to lend money to NBFCs.

Let us know about the industries wishlist from the Union Budget?

I think the Budget will have three focus areas and they are job creation, rural economy and financial inclusion and taking more people in the tax net. If you look at the first area of job creation then I feel industries that can create more job opportunities will get a boost, and they will be housing and infrastructure, SME segment, NBFC segment and manufacturing. But the most important segment, which creates the most number of jobs is housing and infrastructure sector. Housing sector creates several jobs like construction workers, carpenters, plumbers and engineers among others. More importantly, the housing sector also benefits the core sector of the economy like cement, steel, power and paint companies. So, there is a need to boost the housing sector. However, the housing sector is facing two issues and they are (i) unsold inventory – huge inventory has been created mainly in some big cities and (ii) there are certain stuck projects, which is not progressing, and it includes half done projects. Developers don't have enough money to complete their projects. These are the two issues and they can be tackled by adopting two different methods.

Liquidity concerns have not been resolved completely yet. How long the problem will remain in the system?

NBFCs are facing two different issues (i) liquidity issue – unavailability/lack of adequate liquidity in the system and it doesn't exist any longer as it has been resolved and money is available in the system, which is running in positive liquidity for some time. (ii) Risk aversion – It is not something that RBI can easily tackle because the risk aversion has developed in the system and the reluctance on the part of the banks to lend money to some of the NBFCs because today's regulatory environment is quite strong, rigid and well-regulated for the market. This is a reason the banks are reluctant to lend money to NBFCs. In addition, the regulatory environment for NBFCs has been strengthened a lot, in the sense liquidity requirements have been imposed on NBFCs. The same regulations that are applied to the banks are applied on NBFCs. So, this should give confidence to the banks to start lending money again to the NBFC sector and RBI will have to play an important role in it.

Consumer demand is very weak and even the investment cycle is not picking up. So, suggest things the government must do to revive the demand cycle?

There is a demand slowdown across the world and India is not the only one. In fact, we are comparing with the very strong situation that was a year ago and, in that context, things are looking weaker, otherwise, growth opportunities in India are far stronger than the other countries. But to pick up the demand, we will have to create more jobs and it can be done by boosting those sectors that can create jobs like the housing sector and some tax incentives may go a long way in boosting demand, which will lead to some of the access supply being taken out of the economy and that by itself will lead to more developers constructing/developing more, which will lead to job creation.

What is your view on the India-China trade war? Do you think it is a treat or an opportunity for India?

I have the same view that our economy is not an export-driven economy like China. So, if there is a trade war between the US and China then we can get an advantage out of it and not a disadvantage. Our biggest import item is oil and it is something we must watch out as if oil prices go up at the global level then it will put inflationary pressure on the economy. Except for oil, I think global events have a relatively far lesser impact on India as it has on other countries. It can be an opportunity for us to grow faster.

We have seen a growth of 12.3% in bank lending to NBFCs vis-à-vis to the previous quarter and better confidence is tricking in. Do you think that it will get better in future?

I feel that the risk aversion in the system will possibly become a little lesser. The complete credit market was frozen in September-October 2018 when the ILFS crisis came to light and compared to that things are a lot better, but having said that even today risk aversion still exists in the system. So, this risk aversion should be removed, and it is very important that the government and the RBI meet senior bankers and give them confidence.

Analysts say that they are quite bullish on HDFC. What is that thing that HDFC is doing but others are not able to do?

In the early 1990s, we, during our meets with the investors, used to tell them that we have set four objectives for ourselves and they are (i) the asset quality (ii) operational efficiency (iii) growth in a measured manner and (iv) overall efficiency in asset liability management, balance sheet management, customer service and things like that. I think the biggest thing between us and some of the NBFCs which are under stress has been the fact that in last four-five years many of the NBFCs went on a very aggressive growth path and people were aiming at a 30-50% growth. Under the system, the idea of 30-50% growth is never a good idea because growing in the lending business is never difficult. If the lending norms are tweaked a bit and you become a little more lenient in lending, sacrifice your margins and you can achieve huge growth but that is not something that can lead to long-term success. So, you should calibrate on your growth and then grow in accordance with the same.

HDFC has acquired Apollo Munich Health Insurance in the recent past. What is your outlook on health insurance companies?

We are not seeing anything else at present. I had said a year ago that we are looking at the health insurance space in a very big way and also informed that either it could be organic or inorganic growth. And, got an inorganic growth opportunity with Apollo Munich and we seek to seize that opportunity. I think there are synergies and we will first acquire the company and then it will be merged with HDFC Ergo, which is already in the general insurance business and there will be a lot of reduction in cost by the virtue of IT cost coming down, infrastructure cost coming down among others.

But market analysts say the deal is not too lucrative for HDFC and they feel that the deal is expensive. What is your take on it?

I would like to say that we have studied it thoroughly and have done the due diligence, and I feel the synergies that will prop up will lead to a significant increase in profitability. And, keeping that in mind we have invested in it and we believe that the investment is a very good investment at that price.

What is your outlook on capital raising plans and loan growth for this fiscal (FY20)?

I think that housing demand is structural in the system and individual demand for housing is going to be very strong for the next 5-10 years. So, that continues unabated and the growth that we have seen in the last two-three decades will continue for a long period of time.