He also added that the banking system will have to grapple with the fact that their deposit growth has been lagging loan growth, which is a big worry.
Keki Mistry, vice chairman and CEO of HDFC, shared his views and his outlook on the money market, the non-banking financial companies (NBFC) crisis, the demand for housing, and the liquidity in the market.
Talking about the corporate bond market, he said, “I think things have become a lot better from a money market perspective compared to what they were three-four weeks ago. It is not as good as it used to be seven-eight months ago but clearly cost of funding has come off.”
Speaking about the NBFC crisis, Mistry said, “To my mind it all started about four-five years ago when there was so much euphoria about India that everyone wanted to start businesses, start NBFCs and in that process a lot of people did start NBFCs and housing finance companies (HFCs) and these companies went for very aggressive growth. Growth rates of 40-50 percent were common and anyone who grew at less than 35-40 percent was considered to be a laggard. Not only was the growth very strong, a lot of these companies went for an asset-liability management (ALM) mismatch, borrowing short-term money, lending long-term money and then because there was so much of liquidity in this system right through 2014 and 2017 even though I had borrowed money at the short-term, it kept getting rolled over from time to time so it effectively became long-term money. In 2018, things changed one because Fed started tightening then came rise in oil prices and some degree of inflationary effect, Reserve Bank of India (RBI) tightening and then last but not the least was the IL&FS crisis and then there was a complete deficit of trust. That continued for a while and many of the NBFCs and HFCs have been selling their assets to raise liquidity and they have used that liquidity to pay off their liabilities. Therefore, there has been no default in the system."
“My sense is that all the NBFCs and HFCs, which had this issue in the past have raised sufficient money now to ensure that whatever liabilities come up for maturity over the next one-two months, they will have the liquidity to be able to pay it off. I don’t expect there to be a crisis, there is still a little bit of – I won’t say nervousness – scepticism in the bond market for some of the not so well known names but by and large I think the significant trust deficit that existed in September, I would say 80-90 percent of that is over,” said Mistry.
Sharing his expectations from the RBI's monetary policy next week, Mistry said, "My sense is that RBI will cut rates but as far as the banking system is concerned, the banking system will have to grapple with the fact that their deposit growth has been lagging loan growth. That is a big worry for the banking system and because the deposit growth has been lagging, they are not in a position or may not be in a position to lower their deposit rates."
