You had gone on record saying that timely repayment by NBFCs will help them to regain confidence. How do you see the situation shaping up?
The problem really emanated with IL&FS faced and that created a lot of risk averseness in the market. Then people started looking at the balance sheet composition of many of the NBFCs and started finding that many of them had funded themselves through short-term commercial papers and that created long-term assets and created a fear psychosis in the market.
Increasingly, we have seen over the last three or four weeks that all the commercial papers that came up for maturity have got repaid or rolled over on time. There has been no default. That by itself, has given a lot more confidence to the market today than was the case in the third week of September when the crisis really erupted.
The confidence level today is a lot better. Money is available. The complete risk averseness that we saw in the market three-four weeks ago is behind us. I do not think things are normal as yet but they are getting towards a degree of normalcy in the course of next two or three weeks as more of these commercial papers mature and get rolled over or repaid on maturity.
The confidence will then come back into the system and in a couple of months time, it should be pretty much business as usual for most of these NBFCs. Having said that, many of the NBFCs would have suffered some impact on growth because over the last one-and-a-half month or so, many of the NBFCs have significantly slowed down on their disbursements.
How do you see credit growth picking up from here?
I am talking of the financial sector per se and not necessarily of any one particular sub-sector within that. The demand for financial service products in India is very structural in nature. NBFCs and banks provide the funding. NBFCs are niche players and are able to provide a lot of niche services that some of the banks are not able to provide. Therefore, they will continue to have a future in the months and years to come.
As far as interest rates are concerned, there are no inflationary pressures in the economy at the moment. The inflation numbers seem to indicate that inflation is extremely low and my sense is that there will be a further pause by RBI at the next credit policy round. We do not see interest rates moving up. The 10-year G-Sec rate has corrected and has come down about 15 to 20 bps in the very recent past. The demand will be strong in India but for housing, it will be even stronger.
Dont you think that the shadow of doubt that the IL&FS issue has created about the sector, will drag on for the next six months or so?
IL&FS was a stray incident. We are not going to have a repeat of an IL&FS and there is enough strength in what we have seen over the last three or four weeks. The short-term liabilities of NBFCs have been met successfully.
I am confident that going forward over the next three or four weeks, as these commercial paper keeps maturing and keep either getting rolled over or start getting repaid on maturity the full confidence will come back into the system. And if the confidence comes back into the system, it should be business as usual in two to four months time.
IL&FS was a one-off incident and we should equate IL&FS with anything else that is happening in the financial system today.
What do you expect from the regulator?
I am sure that the regulators whether it is the RBI or for that matter the government is cognisant of the need for growth in economy and will ensure that there are adequate steps taken to ensure that enough liquidity is provided in the system to ensure that the growth keep happening. It is just that the last one month has seen a bit of slowdown in disbursements which has largely been accentuated by the fact that many of these NBFCs had short-term liabilities and because of the risk averseness that was there in the market these liabilities were not getting renewed on maturity and therefore people have to scuttle around for more money but as I said that phase is now behind us. Confidence has come back into the system. Banks amongst others are beginning to lend money in a big way. So, it is the bank, it is the Life Insurance Corporation, it is the other entities within the financial system which are now providing the liquidity that the system really requires.
Do you feel that in the near to medium term, there could be a scale-back in growth for NBFCs and a blessing in disguise for banks?
I would say that for the last one month and maybe going forward for the next month or two, till complete confidence comes back into the system, the disbursement growth in some of the NBFCs may weaken a little bit.
But having said that, I would expect full confidence to come back and NBFCs to have an important role to play in the financial system. They are niche players. They have a niche role to provide and a big role to play in the times to come.
How do you see the composition of your loan book at present and what is the growth outlook?
We see no change in our growth outlook. We never guide the market towards growth but we continue to see very good growth. When the second quarter results were declared just a couple of weeks ago, we had 18% growth in our individual loan book. The growth continuous to remain extremely healthy.
The housing market in India offers enormous opportunity for growth. Also the fact that housing today is a lot more affordable compared to what it used to be even 10 years ago. Secondly, the penetration level of mortgages in India is extremely low. The mortgage to GDP ratio in India stands at 10% compared to something like 63% in the US or 68% in the UK or 22% in China. Thirdly, we have a young population in India. Two-thirds of Indias population is below 35 years of age and unlike the west, in India people go to buy house only when they are in their late 30s. So, it means that two-thirds of the population has not even thought of buying a house so far but over the next one, three, five, seven, ten, fifteen or twenty years, all these younger people will get to an age where they will necessarily have to buy a house.
There will be a structural growth or structural increase in demand for housing loans in India and last but not the least, the focus that the government has put on the sector by giving fiscal benefits and by having the subsidy scheme which is now in full play now.
All these factors taken together will ensure that the growth for housing loans will remain strong for a very long time and as an important player in the financial services sector, we continue to remain confident of our growth.