Mumbai: Housing Development Finance Co. Ltd (HDFC), India’s largest mortgage lender, is set to tap the equity market after a gap of 22 years with the initial public offering (IPO) of its insurance business. After a failed attempt at merging the life insurance company HDFC Standard Life with Max Financial services, Deepak Parekh, chairman of HDFC, confirmed the deal with Max is off the table and the group is looking to list its mutual fund business in the first quarter of the next financial year. In an interview, Parekh also shared his views on growth, the government’s fiscal stimulus package and the new ventures that the group is exploring. Edited excerpts:

The market reaction to some of the insurance firms’ listing has been subdued. Does that worry you?

It’s because of over-valuation. Now they say, you are doing an issue now, so you look at March 2018 numbers. Analysts are looking at March 2019 numbers. We hope we have left money on the table. We have priced it lower because there is fatigue in the market. Insurance firms have not done well. The response has not been good. We need investors for more capital.

Would you still consider the merger with Max post the listing?

The Max merger is off the table completely. We had written to Insurance Regulatory and Development Authority of India (Irda). We have not mentioned a word in the prospectus. I have not met or talked to them since we broke off.

We had to make up our mind whether to continue or not because that was rejected because of technical reasons. The Insurance Act says that the insurance company can only merge with another insurance company, not a holding company or a finance company.

What was the complementarity that you saw in the deal with Max?

Max didn’t have a bank in their stable. Yet, they have developed an excellent distribution network, which we have not. We have HDFC and HDFC Bank that bring us business. The urge or necessity for developing a full-time individual agency is limited. They have a much larger share of endowment policies rather than ULIPs. The team was good. Their concentration was largely north India. We have a higher distribution in western India. They didn’t want to merge the two insurance firms.

With the Max deal off the table, how would you look at filling the gaps within HDFC Life?

I feel consolidation is the next thing that will happen in insurance, because there are many small firms that are not doing well. You make losses; how long can people continue making losses? There has to be some consolidation.

There are 43-46 insurance companies today—life, non-life and health. There is a fair amount of consolidation which will happen. But it has to make sense, add value.

Would you look at listing your mutual fund business?

We are listing it in the first quarter.

Are you looking monetizing any other assets?

At this moment, we are looking at these two. Non-life is still small. It has to grow for a couple of years. We have an education company Credilla, which has been offered massive valuation from private equity firms. But we need to grow that company. That can be 3-5 years later.

India’s economy has slowed down due to the impact of demonetisation and GST. Does that worry you?

The 5.7% GDP growth (June quarter) was an aberration because of big bang reforms. Whenever there is reform, there is going to be a slowdown. There is always pain before gain. It has happened all over the world. So it’s said, you first go to hell before heaven comes. Expect the third and fourth quarter to be bumper quarters.

These reforms have, however, left many small and medium sized entrepreneurs unemployed. What do you think the government should do to boost job creation?

Two sectors where jobs can be created are roads and construction. It solves a huge amount of the problem. Capacity utilization of all your firms will be over 100%. The private sector will start looking at expansion and putting up new facilities.

If you look at the 12 stressed cases, four are steel companies. All these will go. Expressions of interest are double, triple. I know there is interest in textile, shipyard, and auto ancillary. Bhushan has the largest interest; PEs are looking at it.

Affordable housing demand is massive. The government budget was an affordable housing budget. They have given benefit to every constituent. What we don’t have is faster clearances from state governments. There are half a dozen projects that we have funded. Our private equity has funded affordable homes, which is waiting for clearance in different states.

The government announced a Rs2.11 trillion recapitalisation plan for public sector banks last week. Do you think this is enough to spur credit offtake?

That was necessary. You cannot have a strong economy with these banks. You can’t have a strong bank and a weak economy; they have to go side by side. All fundamentals are good in India. This is an Indian TARP (Troubled Assets Relief Programme) and it has done well because this Rs2.11 trillion is a two-year thing. So the government has taken care of not just current NPAs but 5-10% that may come up. This is a big bang reform. The equity they put in will increase value for them. When you say Rs8,000-9,000 crore will be the interest, they will make much more than that. They will make enough money to pay back the bonds in five years.

Do you think the government should have instead looked at a targeted fiscal stimulus plan?

I think the banking reforms is the first step to make them viable. You will see after this, consolidation talks will start. You will also see that more equity will be sold by the government. They are already talking about Exchange Traded Fund (ETF), where they will put stocks like L&T, ITC and some of the banking shares, and float that to raise funds. Privatization of equity will come into the banking system.

With growth slowing down, do you think it’s time for the Reserve Bank of India (RBI) to cut rates?

Containing inflation is the biggest challenge in India. RBI in its wisdom and the monetary policy committee gives satisfaction that it’s not a one-man’s decision. It’s a group of people who take decision on interest rate.

HDFC is looking at new ventures like distressed asset fund, health insurance?

We have got a fair amount of mezzanine debt and 12-year equity from sovereign wealth fund. We have given fresh money to builders in the form of equity. We have tied up with Mahindra, Godrej, Tata and L&T. We want to look at a distressed asset fund. We have had some internal discussion internally and with regulators around a real estate distressed asset fund. There are many projects that are half complete, which has public money involved, and the builder has either run away or is in jail. We have talked to National Housing Bank (NHB). We would like the NHB to take some initiative where we all contribute. It should have some legality to work.

Health insurance is a good business. Star Health is selling. We have also received some message from Kotak to sign a confidentiality agreement. We already have health insurance products in life and non-life. A standalone health company should be a part of the insurance company. We don’t want to create a new insurance company.