Net interest margins to be under pressure for a quarter: HDFC chairman Deepak Parekh

HDFC will hold a separate meeting for shareholders’ approval for merging the corporation with HDFC Bank. Speaking at the annual general meeting in Mumbai on Thursday, HDFC chairman Deepak Parekh said shareholders should show patience and avoid raising questions regarding the merger at the special meeting to be held subsequently.

The merger, which was announced in early April, requires a series of approvals from the banking and insurance regulators before it goes to the National Company Law Tribunal and shareholders, he said.

Parekh said the largest pure-play home financier may face a compression of its net interest margin (NIM) in the short term, as it is unable to immediately pass on the impact of the Reserve Bank of India’s rate hike to borrowers. However, he expected the spreads and margins to stabilise over the medium to long term.

The RBI has hiked interest rates by a cumulative 0.90% in two successive actions since May.

Parekh said the impact on the NIM, which stood at 3.5% for the March quarter and 3.7% for the June 2021 quarter, will be for a “quarter or so”. “The manner in which interest rates have moved resulted in some transmission lag and this may have a short-term impact on margins, largely in comparison with the corresponding quarter of the previous year,” Parekh said.

“When the RBI increases the interest rates, our cost of borrowing goes up immediately, but there is a few months’ lag before we can increase the interest rates,” he said.

Parekh said a slew of factors augur well for India’s growth at present, but the mood is “sombre” because of the volatility in the equity markets. The risk-averse foreign portfolio investors are selling aggressively to cover for losses they are booking in other emerging markets, which has led to the difficulties, he said.

Fortunately for the country, the increased interest from domestic institutional investors and retail investors has helped support the equity markets.

The positives which augur well for the economy, which is projected to grow at over 7%, are the government’s commitment to higher capital expenditure, food security and capacity utilisation touching 75% which portends the beginning of a new private capex cycle, he said.

Inflation, which has been consistently breaching the RBI targets, is not because of excess demand but is attributable to supply-side issues emanating from surge in oil prices due to geopolitical tensions, Parekh said, exuding confidence that price rise will trend downwards once the current problems ease.

In such a context, there is an immense demand for housing in the country which will also translate into demand for home loans, Parekh said, pointing out that in March this year, HDFC witnessed the highest demand for a single month in its history.