‘Mobilising deposits & cyber security key challenges for banks’

‘Today, there are multiple options to invest,’ he added. (TCS)

Mobilising deposits and cyber security risks are the two biggest challenges for banks, Keki Mistry, former VC & CEO at HDFC and additional and non-executive (non-independent) director at HDFC Bank, tells Piyush Shukla and Ajay Ramanathan. Mistry believes there is a huge appetite for housing credit in India while the asset quality of lenders is the most pristine since the last decade. Excerpts:

What are the challenges for banks in the long term?

Banks need to focus on building liabilities at an optimum cost because the growth in advances has been very sharp. Secondly, cyber security challenges are increasing every day. At no point in time can any organisation ever be 100% sure that it will not face cyber attack. So, you have to keep evolving and looking at the latest trends and keep updating systems.

Also ReadThe big bank rush for deposits

Small and mid-sized banks are continuously facing deposit mobilisation challenges. Does this pose any systemic risk in long term?

Today, there are multiple options to invest. As an individual, the first decision is whether to invest in a financial instrument or in other asset classes like a house, real estate, gold etc. Further, she has to decide whether to invest in an equity or debt mutual fund or some other debt instrument or bank fixed deposit, or a government bond. The equity markets have done particularly well over the past few years and consequently a lot of savings money which otherwise could have gone to bank deposits has ended up in equity. These are cycles which will keep happening.

The share of unsecured loans in personal loans is rising while that of secured mortgage loans is static…

A few decades ago, there was a huge reluctance to borrow money, but people now borrow not just to create an asset, but also to buy household appliances or to travel. A housing loan has duration of 5-6 years, whereas unsecured loans have a tenure of 6-18 months. So, the two are not comparable. I do not think any bank or NBFC, at this point of time, is seeing any serious concern as far as asset quality is concerned. But the Reserve Bank of India, very rightly, saw that unsecured credit growth was rising fast and as a matter of caution increased the risk weights.

So, lenders are not seeing any stress building up?

No. The credit profile of customers today is far better than ever before and GNPAs of banks are at a decadal low. A loan which 10 years ago may not have been classified as an NPA, will today be classified as one. Therefore, the GNPA at 3.9% as of March 2023 is certainly not more than 3.9% because everything that is remotely at risk is now required to be provided for. Asset quality of both banks and non-bank lenders is very good, corporate leverage has come down significantly.

When could RBI start cutting repo rate?

In my view, interest rates have now peaked and the RBI may start cutting the repo rate during the first six months of 2024. However, rate action will be purely data-dependent. The RBI will be extremely watchful on the headline inflation trajectory, but we have conquered core inflation , thanks to RBI and the government’s policies.

Also ReadIDBI Bank PAT rises 57% Y-o-Y on strong advances

Outstanding housing credit stands at over Rs 25 trillion currently. What is the incremental appetite for home loans in the country?

The demand for home loans and other financial products in India is going to be huge for decades. The penetration level, especially for mortgages, is extremely low. The total housing loans outstanding in India are about 11% of GDP, but most Western countries have a ratio of above 50%. Also, two-thirds of India’s population are below 35 years of age and the average age of a first-time home buyer in India is 37-38 years. Therefore, two-thirds of population today have not yet thought of buying a house but gradually will do so.

The affordable housing segment has seen a slump in 2023, will there will be a revival in 2024?

Although the mid and premium segments have done well since Covid, the demand for affordable housing continues to be good. I am very convinced that affordable housing as a product has got phenomenal potential in India. It will grow and grow at a rapid pace. The government has also been extremely committed to the sector. A boost to the housing sector ― particularly the affordable housing sector ― provides a huge thrust to economic growth.