Following is the transcript of CNBC's interview with Keki Mistry, Vice Chairman and CEO of Housing Development Finance Corporation (HDFC) at the Credit Suisse Asian Investment Conference in Hong Kong. The interview was broadcast on Squawk Box on 19 March 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Bernie Lo and Akiko Fujita.
Bernie Lo (BL): OK we're back at the Credit Suisse Asian Investment Conference. One of the perennial problems in so much of Asia is how do you put people and homes together. I mean, where Akiko and I are in Hong Kong we sport the, of course, unenvious label of having the world's most expensive housing and it's a constant debate and a constant struggle between people, government policy and the public-private split in the markets. In India, our next guest says that the mortgage market is underpenetrated and there's a lot of work to be done. I mean, imagine, you know, over a billion people, a lot of them young people, a lot of people in their twenties and thirties that are looking forward and that is a responsibility largely of HDFC. Joining us on the program is Vice Chairman and CEO Keki Mistry. Mr Mistry, thanks very much for joining Akiko and me at the Conference here. Where, how much progress, I thought – HDFC has been at it for a long time, trying to put people and homes together and really deepen the mortgage market. What kind of – where are you in the whole process?
Keki Mistry: Well, we've been growing at a compounded rate of nearly 20 percent a year now, and this is the kind of growth we've seen for almost a decade and my sense is given the depth of the market, the growth in housing will continue to remain strong for a number of years. There are several factors which point toward sustained growth. The first is that housing in India has become a lot more affordable compared to what it used to be in the past. Now, when we talk of 'affordable', we're talking largely of the tier two towns, the tier three towns, even the outskirts of the big cities, not necessarily the heart of the big city where prices are still very expensive. The other thing is that the penetration level of mortgages is extremely low. The mortgage-to-GDP ratio in India stands at nine percent. You compare that to the U.S. which stands at 63 percent, or the U.K. which is at 68 pecent, or China which is at 22 percent. India is only nine percent, so it's a very, very low level of penetration. The third factor which pushes the growth is the government incentives. The Indian government has been very focused on housing, has been doing a lot of things to encourage people to buy houses, so for example the interest that you pay on a housing loan is tax deductible every year, the quantum of deduction is 200,000 rupees every year, the principle repayment of a housing loan is considered as saving and along with other avenues of saving, qualifies for a deduction of up to 150,000 rupees.
In addition to that, there is also a subsidy scheme that the government has announced with certain conditions that are satisfied by a home buyer and the last – and the most important – factor which gives us confidence in believing that the growth will remain strong for a number of years is the demographics in India. Two thirds of India's population is below 35 years of age and unlike what you see in the West, in India people do not buy a house when they're in their twenties. So the average age of a first-time home buyer in India is 37 or 38 years and with two thirds of the population being below 35 years what it really means is that two thirds of the population has not even thought of buying a house. But over the next one, three, five, seven, ten, fifteen, twenty years all these younger people will get to an age where they will necessarily have to buy a house. So on a structural basis the demand for housing in India will always remain strong.
Akiko Fujita (AF): You talk about the low penetration in the housing market. That alone points to a huge upside for HDFC, but let me take this a bit macro because you talked about the demographics over in India, certainly you've got the younger population that will ultimately become home buyers down the line as you point out, but what we're looking at right now in India is half of those people who are unemployed right now. How concerning is that for you given the structural reforms, the momentum that we have seen in a broader picture, the employment picture simply doesn't appear to be improving?
Keki Mistry: Employment numbers tend to be misread quite a bit because we are looking at formal employment. There is a lot of employment that happens in informal sectors which is not necessarily captured into the formal system, so yes there is a bit of unemployment but it's not as large as it is envisaged, as large as it is believed to be because the informal employment that we have in the country is very large.
BL: Tell me about, tell me about changes going on at HDFC – and HDFC we want to make the distinction because a lot of people hear HDFC and they associate it with a bank, which is actually a separate entity – now your organization is in, is in the running to acquire a large stake in an entity called Canara Bank. What would that actually do and what kind of a –
Keki Mistry: I'm sorry, what stake in which bank?
BL: Canara Bank, is that correct?
Keki Mistry: No, that's not correct. HDFC itself, not the bank, is looking at acquisition in the mortgage business. One of the opportunities which is there is Canara, is Can Fin Homes, which is a subsidiary of Canara Bank. We made a bid for it, whether we finally end up buying it or not is something which we don't know. Having said that, it's much, much smaller compared to HDFC.
Our own balance sheet size 3.5 trillion rupees, whereas this would be very, very small in comparison, so it really is not going to move the needle. Our growth is largely going to be organic growth. Yes there will be some amount of inorganic growth that could also come in, but the growth is primarily going to be organic.
AF: HDFC recently joined a long list of banks that banned the purchase of cryptocurrency by card. I wonder what you see as the security-related risks stemming from the digital currencies we've seen a huge growth in?
Keki Mistry: Well, that's the question that you should more ask HDFC Bank rather than HDFC itself because it's more to do with the bank than with HDFC primarily.