Net interest margins will be under pressure for a quarter: HDFC Chairman Deepak Parekh


HDFC will hold a separate meeting for shareholder approval to merge the company with HDFC Bank. Speaking at the annual general meeting in Mumbai on Thursday, HDFC chairman Deepak Parekh said shareholders should be patient and avoid raising questions about the merger at the special meeting to be held. later.

The merger, which was announced in early April, requires a series of approvals from banking and insurance regulators before going to the National Company Law Tribunal and shareholders, he said.

Parekh said the largest domestic pure-play financier could face a squeeze on its net interest margin (NIM) in the near term as it is unable to immediately pass on the impact of higher interest rates. Reserve Bank of India rates on borrowers. However, he expects spreads and margins to stabilize over the medium to long term.

The RBI has raised interest rates by a cumulative 0.90% in two successive moves since May.

Parekh said the impact on the NIM, which stood at 3.5% for the March quarter and 3.7% for the June quarter of 2021, will be “about a quarter”. “The way interest rates have moved has caused some transmission lag, which may have a short-term impact on margins, largely compared to the corresponding quarter of the previous year,” Parekh said. .

“When the RBI raises interest rates, our cost of borrowing increases immediately, but there is a lag of a few months before we can raise interest rates,” he said.

Parekh said a host of factors bode well for India’s growth right now, but the mood is “gloomy” due to stock market volatility. Risk-averse foreign portfolio investors are selling aggressively to cover losses they are taking in other emerging markets, which has led to difficulties, he said.

Luckily for the country, increased interest from domestic institutional investors and retail investors helped support stock markets.

Positives that bode well for the economy, which is expected to grow by more than 7%, are the government’s commitment to increase capital expenditure, food security and capacity utilization reaching 75%, which suggests the start of a new round of private investment, he said.

Inflation, which has consistently exceeded RBI targets, is not due to excess demand, but supply issues stemming from soaring oil prices due to geopolitical tensions, Parekh said, suggesting that the rise in prices will tend to come down once the current issues subside.

In such a context, there is a huge demand for housing in the country which will also translate into a demand for housing loans, Parekh said, pointing out that in March this year, HDFC witnessed the highest demand for a single months of its history.

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