Chennai pips Mumbai in home loan race Tier-II Cities Drive HDFC Growth: Parekh

 It's been almost 18 months since Deepak Parekh moved on from becoming executive to non-executive chairman of HDFC. Despite the move, Parekh continues to have his finger on the pulse of the economy and the company. And why not? Apart from captains of industry, even the government pays attention when he speaks. It's small wonder then that he is on some of the most important committees formed by the government on segments like financial inclusion, infrastructure, real estate or manufacturing. In an interview to TOI, he spoke of how jobs could be threatened with the slow pace of manufacturing activity as well as how the housing loan market continues to grow in healthy double digits, driven by cities outside the metros. Excerpts. 

There is a lot of talk about a slowdown in economic activity yet areas like home loans are showing good 
growth. Is there any cause for concern? 
    It is certainly a worry. Because of inflation and higher interest rates, the tempo of sales growth has been affected. You can see the slowdown in auto and auto ancillaries. Besides sales, margins are also down by a few basis points because manufacturers are not able to pass on to customers the higher cost of inputs—be it freight, materials or steel. While we can still aim at a 7.75% to 8% growth, we need more manufacturing because if we don't where are the jobs going to come from? No one is talking about new factories. Those wanting to do so are getting delayed either because of not getting an approval or land trouble. Basically, there is uncertainty and uncertainty leads to a slowdown. Yesterday I met a top industrialist who told me; 'I don't want to set up a new project because I don't know when will it be completed'. 
What is causing this uncertainty? 
    It is just lack of decision by bureaucrats and politicians. The media has created so much of a scare that honest people are scared to take a decision. There is total paralysis in policy. My hope is that there is this ministerial and bureaucratic change that has happened and is happening…and this will lead to quicker and more transparent decision making. I am sure there will be a huge cleansing effect because of what has happened. Today we have politicians, businessmen, bureaucrats, government employees, professional accountants, managers all in jail. Both the giver as well as taker of bribe is inside. So the giver of the bribe will be more cautious now. 
What is the trend in real estate prices and loan disbursements…Are high 
prices deterring buyers? 
    Prices have not gone up so much in smaller cities. There is a huge growth in tier-two cities. Today our business in Chennai is bigger than that in Mumbai. Chennai has overtaken Mumbai and ranks as the second largest market after the National Capital Region in loan applications. Hyderabad boomed a little but last year because of the Telangana issue, business is a bit slow. Pune and Ahmedabad, however, continue to grow. 
Have real estate prices 
peaked? 
    Real estate prices have stabilized. Builders may not have brought it down but they are not increasing prices. It depends on their holding power. If RBI keeps hiking rates, automatically the demand will come down. 
What is your take on the 
RBI's policy paper on holding companies? 
    There are certain issue like stamp duty and taxes. There is a stamp duty implication on transfer of assets and there is the issue of a 17% dividend distribution tax that is payable at every level. These are not part of RBI's mandate and they will have to convince CBDT and revenue department. Things like that need to be done to make the report on financial holding companies workable. 
Would HDFC continue to infuse capital in HDFC Bank to retain stake? 
    The last time we invested Rs 4,000 crore in the bank was when they raised capital for the merger of Centurion Bank. I don't see them needing capital for the next two and a half years. We will address the problem when we come to it. 
HDFC also has large investments which were to be transferred into a special purpose vehicle to realize value… 
    We first thought of doing a separate SPV but it was time consuming and there were conditions on our investments so we did not go ahead. But we have sold several of our unlisted companies—we sold IL&FS, we sold our investment in Lafarge and we sold stake in Intelenet. We also sold our holding in Siemens at 30% premium to market price in response to their open offer. The sales 
were either because we felt the investment had peaked or because something had happened which was detrimental to our holding. So it is circumstantial and there is no compulsion to sell every quarter. 
When will your real estate fund book profits? 
    We have many real estate funds—domestic and international. In our Rs 1,000-crore domestic fund, we aim to repay Rs 1,000 crore by end-September so that at least the principal is paid back to investors which include SBI and other institutions. We will divest the remaining holding in future years when we get an opportunity. It's too early to talk about returns but we are targeting 15-20%. 
What about HDFC's foray into education? 
    We are still discussing. We have not decided how to go about the subsidiary. It is still premature as we do not have board approval yet. Vocational is one thought because we are convinced about the need in information technology, ITes, travel and tourism, which would help in skills upgradation.

Deepak Parekh | CHAIRMAN, HDFC