Mumbai: Deepak Parekh, the chairman of Housing Development Finance Corp. Ltd (HDFC), the mortgage lender in which Citigroup Inc. has a 11.74% stake, said it was up to the US bank to decide whether its investment in the Indian firm was “non-core or not”, and added that following media reports about Citi’s desire to sell HDFC shares, “half a dozen interested parties have called us and said, in case Citi is the seller, we are willing buyers...”
Parekh’s comments came during and on the sidelines of the company’s annual general meeting during which HDFC reported first quarter profit rose less than analysts expected after the firm’s cost of funds increased.
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Parekh said he did not see any slowdown in demand and expects HDFC’s portfolio to grow in the 25-30% range this year: “We are seeing demand from tier II and tier III cities, hence there is no slowdown...”
Citi has been shedding assets after reporting two straight quarterly losses totalling $15 billion (Rs64,800 crore). At Wednesday’s market value, Citi’s 11.74% stake in HDFC will fetch the US bank Rs5,741 crore ($1.33 billion).
HDFC reported a 25.56% increase in its net profit to Rs468.11 crore for the quarter ended June, up from Rs372.81 crore in the corresponding period last year, on the back of growth in interest income. Its interest income increased by 28.75% to Rs2,219.92 crore against Rs1,724.15 crore in the corresponding quarter last year. Its total income increased to Rs2,318.62 crore from Rs1,830.39 crore.
After the announcement, the HDFC stock hit a year’s low of Rs1,690 on the Bombay Stock Exchange before ending the day down 4.43% at Rs1,720.50 even as the exchange’s benchmark index lost 0.79%.
Below expectation: Deepak Parekh, HDFC chief. The firm’s Q1 profit rose 25%, less than estimates. (AP)
“The stock took a beating as the results are below market expectations. A 25.90% increase in total expenses is a matter of concern. The cost of funds of the housing finance company is on a rise and this will have an impact on its net interest margin,” said a research analyst with a brokerage who did not wish to be identified. The analyst claimed HDFC borrowed Rs500 crore for three years at 11.15% on Wednesday but this could not be independently confirmed.
Despite the rise in cost of funds, HDFC’s net interest margin or the spread between the cost of funds and its income on deployment of funds has risen marginally this quarter, from 2.22% to 2.26%.
“We expect a higher interest rate scenario. HDFC may look at hiking rates if cost of funds go up. Will wait for Reserve Bank of India’s policy signal to hike rates,” said Parekh. The Indian banking regulator will unveil its quarterly monetary policy review on 29 July.
HDFC hiked its lending rate by 50 basis points on 30 June. One basis point is one-hundredth of a percentage point.
Bloomberg contributed to this story.