Cos low on cash can lend more with same capital: Keki Mistry

The Reserve Bank of India's dual strategy to spur growth in India's housing segment could help companies starved of capital to lend more with the same amount of capital, Keki Mistry, CEO of Housing Development Finance Corporation (HDFC) told Shilpy Sinha. In its monetary policy, RBI had cut the standard asset provisioning on housing loans to 0.25% from 0.4%, reduced risk weight on loans above Rs 75 lakh to 50% and fixed a single loan-to-value ratio slab on loans between Rs 30 lakh and Rs 75 lakh (the two categories of loans) at 80%, thereby relaxing norms for housing loans.

Edited excerpts:

Will home loan demand go up with change in risk weight for two categories?

Loans are dependent on two things -size of the loan and loan-to-value ratios. Risk weight in two out of the 5-6 buckets has been reduced. The risk weight reduction is only in incremental loans.

Do you see home loans becoming cheaper because of reduction in provisions for standard assets?

Reduction in standard asset provisioning from 40 basis points to 25 bps is more relevant. That is again for incremental loans and not existing loans. It does not have an economic impact but accounting impact.The capital that we need will come down. These two things do not reduce the cost of funds. Cost of funding is more interest rate based. It depends on where interest rate is in the economy. Lending rates will come down if funding cost will come down.

What impact will it have on the balance sheet of housing finance companies?

It has more impact on the profitability of housing loans because of accounting profitability. Companies that are starved of capital can do more lending with the same amount of capital. It has been changed in two buckets and not across the buckets.

Will there be any reduction in rates of existing loans?

Standard asset provisioning has been reduced for new loans. Outstanding amount on loans that were given five years back will be lower and property prices have not come down, so the risk associated with these loans would be lesser. Logically, for those loans also, standard asset provisioning should be reduced.

Will reduction in SLR result in lower lending rates?

Banks are running excess liquidity today. Due to the fact that they are holding excess government securities, reducing SLR may not have an impact immediately. It may impact in the long term.