We have always worked on four principles. First, our non-performing loans must be below 1% and we always maintain that. Second, our return on equity must increase by more than 1 percentage point every year. Third, the cost income ratio should always be below 15%. Last year, it was 9.2%. Finally, we must maintain a growth between 20% and 30% and we have always maintained that. I think the next two-three quarters will be bad but we will still end up growing above 20%.
What’s your take on interest rate and liquidity?
Liquidity today is not so much of a problem but the cost (of money) is. One can borrow (money) as market has not tightened to that extent and a triple-A rated borrower like us can get 1-year to 15-year loan easily but the cost (of borrowing) has gone up. RBI wants to bring down the inflation rate to around 7% by March next year and I think there is still pain left in interest rates… RBI may increase interest rates in next one month or so by another 100 basis points in order to contain inflation if it does not see food prices coming down after the monsoon
Will you also hike rates?
Yes, if interest rates go up, we will have to. I hope it doesn’t (happen).
Is Citigroup Inc. selling its stake in HDFC?
The Citi chief executive officer (CEO) has publicly said that non-core assets will be sold across the world and they have started selling them. They have sold real estate in Mumbai. They have put expensive flats on the block and more such deals are on the cards. But I can’t say at what stage the HDFC stake will be put on the block. I have been told by Citi that it’s strategic investment. As far as we are concerned, we have been doing businesses together. We used Citibank as our fund manager when we raised the international property fund. We want to give business to Citi and we want to work closely with the bank. We hope to do the initial public offers (IPOs) of our life insurance firm and the asset management company (AMC) sometime in 2009 and we will invite Citi to make a bid for the mandate and give them a little preference (over others) because Citi is a fairly large shareholder (in HDFC).
Currently Citi is saying HDFC stake sale is not on the agenda but since I don’t own the stock, I really don’t know what will happen in future.
People who do not have an exposure to India, and those who already have exposure but want to increase it, keep on calling us and telling us to keep them in mind if Citi actually sells its stake. They are Spanish, Italian and big Japanese banks.
Your life insurance business is growing at a very slow pace.
Yes. That’s because we do not want to have too many policies and let them lapse. We give special training to our agents and we don’t want them to go out in the market and start selling a product, which they don’t understand. There are other insurance firms who don’t even want 100 hours of training (for their agents). They stamp a certificate and send the agents for business. We have a different approach. Standard Life (Insurance Company Ltd), our overseas partner, says it is a long-term game and we shouldn’t worry where we are…
Where are you (in the business)?
On some ratios, we are third; on some other we are fourth and fifth. We don’t look at these as we need to be around 100 years later and build a long-term business and the base must be solid. All our actuaries are from Scotland; they are extremely conservative and cautious…