Transcript - National Housing Bank

Economy and
Interest Rates
31st Meeting of CEO’s of HFCs
Presentation by Mr. Keki Mistry
Vice Chairman & CEO – HDFC
February 18, 2011
1
GDP registering consistent growth
•
•
•
Quarter
GDP Growth (%)
Jul-Sep ‘08
7.70
Oct-Dec‘08
5.80
Jan-Mar ‘09
5.80
Apr-Jun ‘09
6.10
Jul-Sep‘09
7.90
Sep-Dec ‘09
6.00
Jan-Mar ‘10
8.60
Apr-Jun’10
8.80
Jul-Sep’10
8.90
Quarter Ended Sep 10- GDP growth at an impressive 8.90% (highest in any quarter
in the last 3 years)-driven mainly by farm and services sector
Manufacturing growth slowed down - expected to slow down further
GDP expected to grow at about 8.6% during the FY 2010-11
2
RBI Monetary Policy Review – January 25, 2011
•
Liquidity and Inflation are RBI’s primary concerns
•
Key actions in Monetary Policy on Jan 25, 2011



Reverse Repo & Repo increased by 25 bps to 5.50% & 6.50%
CRR retained at 6.00%
Temporary reduction of SLR from 24% to 23% of NDTL extended till April 8, 2011
•
March 2011 Inflation target revised from 5.5% to 7%
•
Stance of the policy




Contain the spill-over of rise in food and fuel prices to general inflation
Rein in inflationary expectations
Moderate enough so as to not disrupt growth
Provide comfort on liquidity management
•
Credit growth at 24% against projection of 20% - growth is broad based
across sectors and not just infrastructure. Housing including PSL
growth was at 13.2%
•
Current Account Deficit at 3.7% of GDP a cause of concern
3
Tight Liquidity conditions persist
LAF (Amt in INR Bn)
2,000
1,500
1,000
500
0
-500
-1,000
Repo
-1004
-1,500
-2,000
Source: Reuters
•
Liquidity shortfall of around Rs 60000-90,000 cr in the system; peak shortage of Rs
1,70,485 cr on Dec 22, 2010.
•
Liquidity expected to tighten further in March 11-High level of bank CDs maturing
in March 11
4
Projection of system liquidity
1
Week
ending
1-Oct-10
8-Oct-10
15-Oct-10
22-Oct-10
29-Oct-10
5-Nov-10
12-Nov-10
19-Nov-10
26-Nov-10
3-Dec-10
10-Dec-10
17-Dec-10
24-Dec-10
31-Dec-10
7-Jan-11
14-Jan-11
21-Jan-11
28-Jan-11
4-Feb-11
11-Feb-11
18-Feb-11
25-Feb-11
4-Mar-11
11-Mar-11
18-Mar-11
25-Mar-11
1-Apr-11
+ indicates money market liquidity will improve -- all amounts in INR 000 crores
2
3
4
5
6
Change in
Net Gov
Net discretionary
Issuance of
Othes incl
currency in
Borrowings (Net of
govt spending
sterilization
Tax
circulation
redemptions and
(includes tax)
securities/
Payments/3G
coupon payments)
OMO
/IPO
7
(13)
(12)
2
3
(24)
(11)
(0)
8
(2)
(9)
(1)
3
4
(9)
(10)
(0)
2
(5)
(3)
(1)
0
(7)
(8)
(2)
1
3
(12)
(14)
(16)
(5)
(21)
6
(11)
(5)
(7)
1
(11)
(3)
(2)
(6)
17
(9)
(13)
(11)
9
(9)
(9)
18
4
4
(7)
(1)
(7)
17
15
12
4
11
33
3
2
8
24
2
7
1
17
28
10
11
9
31
1
7
2
30
5
5
18
40
13
2
3
4
20
8
12
12
8
(9)
-
(11)
(15)
(13)
(8)
(21)
(56)
(14)
(16)
(12)
(49)
-
7
System
Liquidity (+
= surplus)
-27
-50
-66
-66
-72
-73
-101
-104
-99
-76
-115
-148
-139
-112
-79
-81
-93
-92
-57
-85
-88
-67
-39
-50
-103
-85
-49
* Grey indicates projected liquidity
Projected average shortfall till March 2011 : approx Rs 62,000 cr
Projected govt spending from now till March 2011 : approx Rs 108,000 cr
Source: J P Morgan Chase Bank
5
Systemic Liquidity Shortage
•
High cash surplus lying with govt after 3G/BWA outflows-Currently at Rs.114290
crores
•
Increase in currency in circulation - 3.4% higher than PY
•
Higher government spending in rural areas – (NREGA USD 9bn)
•
High Credit Deposit Ratios causing a drain on banking system liquidity
•
Currency with public at INR 888,120 crs (as on 28/01/2011) against Rs 768,033 crs
(as on 31/03/2010)
25
20
19.7
15
10
5
2009-10
2010-11
0
6
Source: RBI
Deposit Growth trailing Credit Demand
Bank Dep Growth y-o-y%
Bank Credit Growth y-o-y%
30
25
Y-o-Y %: 16.7%
23.2
20
15.9
15
10
Y-o-Y%: 17.0%
5
0
•
•
•
Has added to liquidity pressures
RBI in its recent credit policy, reiterated that rapid credit growth without
commensurate increase in deposits not sustainable
Approx 4 % credit growth is on account of credit offtake for 3G/BWA auctions
Source: RBI
7
Inflation remains worrisome
•
•
•
WPI eased to 8.23% in January 2011 (8.43% in December 2010)
Food Inflation eased to a 7-week low of 13.07% for the week ended 29th Jan 2011
(17.05% in the previous week)
RBI’s inflation projection increased to 7% (from 5.5%) by March 2011
12
10
8
8.23
6
4
2
0
-2
Source: Bloomberg
8
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Inflation : Food Vs Manufacturing
25.0
20.0
15.0
15.6
10.0
8.2
3.8
0.0
Inflation (WPI )
5.0
Food Inflation
Mfg Inflation
-5.0
9
IIP growth continues to be volatile
IIP (%)
20
18
16
14
12
10
8
6
4
2
1.6
0
•
•
•
IIP at a low of 1.6% in Dec 10 (down from 3.6% in Nov & 11.3% in Oct)
High base effect coupled with contraction in mining and capital goods
sector
IIP numbers to remain volatile
Source: Bloomberg
10
Rupee in the range of 45-48
Factors supporting a strong Rupee
•
•
•
Robust domestic growth
Favourable Interest Rate differentials
Easy global liquidity augurs well for FII inflows
Risks
•
•
•
•
Widening Current Account Deficit 3.7% of GDP in H1 of FY 11 (as
against 2.2% in PY H1)
Higher Oil Prices
FDI flows slowing down , FII flows volatile and vulnerable to external
factors
Global Event risk – euro-zone sovereign crisis
In the short term, INR is highly correlated to movements in the equity market
indices
11
FII & FDI flows in India
Net FII flows (Equity & Debt) and FDI flows (USD bn)
35
33
29
30
27
25
20
19
18
FII - Equity
19
17
15
FII - Debt
11
11
10
8
10
FDI Inflow
4
5
1
3
2
2
1
0
0
-5
-1
-1
-10
-12
-15
2005
2006
2007
2008
2009
2010
2011-Till Date
• Total FDI /FII flows of USD 58 bn in 2010 –all time high
•Net accretion in Fx Reserves Jan 10 till date : USD 13.81 bn
Source – SEBI website/
Min of Com website
12
Interest Rate Outlook
•
Rate hikes of 150 bps in repo and 200 bps in reverse repo by RBI in FY
11 till date - another hike possible in March 2011
•
Tight liquidity conditions - Call rates average 6.62% since Jan 2011
•
Most banks have hiked their Base Rates thrice since July 2010. Overall
increase by 125 bps - 150ps. Most Base Rates in the range of 9%-9.5%
•
Similar increases in the PLRs of banks
•
Short end rates continue to increase, yield curve has inverted
•
Higher inflation can lead to future rate hikes



Domestic and Global food prices
Global commodity prices
Demand side pressures – wage inflation
13
CHANGES IN BASE RATE TILL DATE
Name of the Bank
Base Rate as on
1-Jul-10
Base Rate as on
14-Feb-11
Change Since
1-Jul-10
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
IndusInd Bank Ltd.
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
South Indian Bank Ltd
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Travancore
Syndicate Bank
The Federal Bank Ltd.
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Yes Bank Ltd
8.00%
8.25%
8.00%
8.00%
8.25%
8.00%
8.00%
7.75%
8.25%
8.00%
8.25%
7.00%
8.00%
8.20%
8.00%
8.10%
7.75%
7.75%
7.75%
8.25%
7.75%
8.00%
8.00%
8.25%
8.25%
7.00%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.40%
9.45%
9.50%
9.50%
8.25%
9.50%
9.50%
9.50%
8.80%
8.50%
8.50%
8.50%
9.50%
8.50%
9.50%
9.50%
9.45%
9.50%
8.00%
1.50%
1.25%
1.50%
1.50%
1.25%
1.50%
1.50%
1.65%
1.20%
1.50%
1.25%
1.25%
1.50%
1.30%
1.50%
0.70%
0.75%
0.75%
0.75%
1.25%
0.75%
1.50%
1.50%
1.20%
1.25%
1.00%
1.25%
Axis Bank Ltd.
HDFC Bank Limited
ICICI Bank Ltd.
State Bank of India
7.50%
7.25%
7.50%
7.50%
8.25%
7.75%
8.25%
8.25%
0.75%
0.50%
14 0.75%
0.75%
CHANGES IN BPLR TILL DATE
Name of the Bank
BPLR as on
1-Apr-10
BPLR as on
14-Feb-11
Change Since
1-Apr-10
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
IndusInd Bank Ltd.
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Travancore
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Yes Bank Ltd
12.00%
12.00%
12.00%
12.00%
12.25%
12.00%
12.00%
12.00%
12.50%
12.00%
12.25%
17.00%
12.00%
13.50%
11.00%
12.25%
12.25%
12.50%
12.00%
12.25%
11.75%
12.00%
12.00%
16.50%
13.50%
13.75%
13.75%
13.75%
13.50%
13.75%
13.75%
13.60%
14.50%
13.50%
13.75%
18.25%
13.75%
14.25%
13.00%
13.50%
13.50%
13.50%
13.75%
13.75%
13.75%
13.50%
13.50%
18.00%
1.50%
1.75%
1.75%
1.75%
1.25%
1.75%
1.75%
1.60%
2.00%
1.50%
1.50%
1.25%
1.75%
0.75%
2.00%
1.25%
1.25%
1.00%
1.75%
1.50%
2.00%
1.50%
1.50%
1.50%
1.55%
Axis Bank Ltd.
HDFC Bank Limited
ICICI Bank Ltd.
State Bank of India
15.00%
16.00%
15.75%
12.25%
15.75%
16.50%
17.00%
13.00%
0.75%
0.50%
1.25%
150.75%
Movement in cost of funds
Rates as on
April 1, 2010 Current Rates
Commercial Papers
6 Months
1 Year
Increase
6.00%
6.60%
10.40%
10.65%
4.40%
4.05%
Non Convertible Debentures
1 Year
6.25%
5 Years
8.70%
10 years
9.00%
10.00%
9.75%
9.50%
3.75%
1.05%
0.50%
* Typical for a AAA borrower
16
Movement in AAA borrowing rates
Commercial Paper (CP)
Source: Reuters
17
Movement in AAA borrowing rates
Term Borrowings (NCD)
Owing to sharp increase in short term rates, interest rate curve has inverted
Source: Reuters
18
Movement in G-Sec Rates
8.5
8.182
8
7.953
8.147
10yr G-Sec
7.5
7.343
7.482
7
6.5
5 yr G-Sec
6
5.5
5.122
5
1 yr G-Sec
4.5
4
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Source : Reuters
19
Implications for HFCs
•
Bank loans are a key source of funding for HFCs. Frequent changes in
Base Rates by banks makes the funding cost volatile.
•
Since the implementation of Base Rates w.e.f. July 1, 2010, the cost of
bank funding has gone up by 3%-3.5%
•
Special dispensation of home loans upto Rs 20 lacs qualifying as
priority sector for refinance from banks has come to an end on March
31, 2010 . Current limit : Rs 5 lacs for indirect finance
•
Banks have been raising deposit rates since December 2010 ,
translating into higher cost of deposits for HFCs
•
Need to look at alternate sources of funding for HFCs
20
Some suggestions
–
NHB may look at providing a short term liquidity facility to HFCs
against their loan assets and investments
–
Housing loans qualifying as Priority Sector under indirect finance
from banks be increased to Rs. 20 lacs from the current limit of Rs.
5 lacs
–
Tax Saving Bonds : Housing may be accorded ‘infrastructure’
status to facilitate issue of tax savings bonds
Priority Sector bonds : Revised RBI guidelines require banks to
lend priority sector loans co-terminus with the underlying home
loans. Banks find it difficult to lend for longer term due to ALM risks.
Issue of priority sector bonds by HFC’s will help the banks to
generate liquidity and also address ALM issues
–
……..contd
21
Some suggestions
Public deposits
–
–
Currently, HFCs can offer a maximum period of 84 months on public
deposits
This limit may be revised to 10 years in order to enable HFCs to attract
funds from institutional investors such as provident/pension funds, Army/air
force group insurance which invests in longer durations
External Commercial Borrowings
–
–
–
Infrastructure companies can now access ECBs
HFCs be allowed to access ECBs as it will open up a new source of
funding
Can be approved on a fully hedged basis, so that HFCs are not open to
forex fluctuation risk
Perpetual debt
–
HFCs be permitted to raise upto 15% Tier I capital by way of perpetual
debt
22
Thank you
23