Mumbai: Housing Development Finance Corp (HDFC), India’s largest mortgage lender, aims to post an average of 20% annual growth in new lending in coming years, its chief executive said, despite surging interest rates and competition.

Demand for home loans will be helped by rising incomes in burgeoning middle-class households and a low penetration of housing loans in Asia’s third-largest economy, Keki Mistry, who is also the vice-chairman of the company, said on Wednesday.

HDFC competes with India’s top commercial bank State Bank of India, No. 2 ICICI Bank and a host of other banks and financial institutions for a bigger share of the mortgage loan market.

“Housing is still affordable in India. The penetration level of mortgages ... is very low at 9% of GDP and in most Asian markets this ratio is over 20%. In the UK and US it is over 80%," Mistry told Reuters.

“So, we continue to believe that we will grow at an average rate of around 20% for a long, long time to come."

HDFC, in which Citigroup sold a 1.5% stake on Tuesday to lower its holding to 9.9%, posted a rise of nearly 20% in loan disbursements in the fiscal year that ended on 31 March to 60314 crore ($13.5 billion).

Loan momentum

Strong economic growth, rising consumer confidence and the launch of attractive products have helped lift demand for loans in India, where the aspirational middle-class mostly rely on bank credit for purchasing homes and automobiles.

But a series of interest rates hikes to tame stubborn inflation has triggered concerns about the banking sector’s loan growth momentum, as well as a possible rise in defaults.

Still, Mistry said HDFC did not see an adverse impact of the rate hikes on its loan growth target due to underlying demand for homes and rising income levels.

“Historically, we have not seen a very close correlation between interest rates and demand, particularly from middle income customers," he said on the Reuters Trading India chatroom.

“The important thing is not just interest rates or property values, it’s also the income of the individual," he said. “If the house is affordable in the context of the individual’s income ... he would buy the house irrespective of interest rates a percent up or down."

HDFC’s provisions for bad loans could come down in this fiscal year through March 2012 as asset quality remains strong, Mistry, an accountant by training who joined HDFC in 1981, said.

He said the company’s spreads, the difference between borrowing and lending rates and a key gauge of profitability, would remain in the range of 2.15% to 2.35%.

On Citigroup’s decision to pare its stake in HDFC, Mistry said the move was prompted by the requirements of new global banking standards, known as Basel III, and it would not have any impact on the mortgage lender.