Stock Market

Lower lending rates likely if liquidity stays for 6 months

Speaking to CNBC-TV18 Keki Mistry, Vice Chairman and CEO, HDFC said that there is plenty of liquidity. “We have seen it reflected in the cost of borrowing. No question about it.”

Retail deposits haven’t come down the way bond rates have come down, he said. “We have to ensure that incremental funding comes from retail deposits.” In periods of tight liguqity, retail deposits is excellent funding, he added.

If this current liquidity continues for another six months, then you will see lower lending rates. But the quantum of lending rates is difficult to say, he said. He said that a good monsoon will translate into lower food prices.

“Last year, we reached the bottom for commodities. We go the benefit of falling oil, commodity prices.” Going forward one may not get that advantage, he said.

The ability of an RBI to keep lowering interest rates has some limitations, he maintained.

When asked whether there would be pressure on margins in the second half of this fiscal year, he maintainted that focus for them is on RoE (return on equity). “Higher return on equity comes from sweating the equity.”  He mentioned that they ploughs back only 50 percent of profits.

He is comfortable with spreads which have moved in a narrow band.