• MARCH 2, 2001

"On a macro level, I think the budget is good"

In an interview with equitymaster.com, Mr. Keki Mistry, Managing Director, HDFC, shared his views on the Budget and future prospects of HDFCís housing finance business.

EQM: The finance minister has once again raised the tax deduction for interest on housing loans. Is it in line with your expectations? How do you see this impacting demand for housing loans?

Mr.Mistry: The tax deduction offered in the current budget for housing loans were in fact more than we expected. It will positively affect demand for housing loans.

EQM: What is the contribution of retail loans to total loans and at what rate it is growing?

Mr.Mistry: Our retail loans in the past few years have grown at a rate of 50% per annum and we see this kind of rates sustaining going forward. Housing contributes 77% of total loans and individual lending accounts for 74% of housing loans.

EQM: What is your view on reduction in limit for TDS for interest on deposits to Rs 2,500 from Rs 10,000? Will this money now flow into the bond markets? Will this impact fixed deposit collections of HDFC?

Mr.Mistry: Change in the tax deduction limit on fixed deposits will only increase administrative work. But it will not impact our current deposit inflows. Since at HDFC we have fully automated environment it is not expected to increase our administrative work.

Debt market mutual fund is a completely different market. People who invest in fixed deposits are not the type of people who invest in mutual fund markets. People invest in HDFC fixed deposits not for the purpose of getting any tax deductions. So I donít see any impact on fixed deposit collections of HDFC going down in future.

The budget has been a promising one in terms of boosting infrastructure spending (tax exemption for infrastructure investment including cut in import duties of capital equipments).

EQM: Do you see the impact of this in terms of increasing FDI inflows in the coming years?

Mr.Mistry: I donít see infrastructure spending in India increasing. The infrastructure needs money at lower interest rates. So unless you have a mechanism where funds go to infrastructure at lower rates (from people who are lending at lower rates), infrastructure spending will not move up. According to section 10(23)(G) of the Income Tax Act, the total interest, which is paid on the infrastructure bonds, was tax free in the hands of receiver. But they issued a circular one and a half year ago saying that it will be included in net income. So why one should invest in these infrastructure bonds where the interest is not so attractive and is also not tax free in the hands of the receiver.

EQM: What will be the impact of imposition of service tax on financial services?

Mr.Mistry: Service tax is not going to be imposed on lending. It will be imposed on certain advisory services and we donít have much advisory services. But property services could come under service tax net. However the segment contributes only marginally to our total income.

EQM: On a scale of 10, how would you rank the union budget?

Mr.Mistry: On a macro level, I think the budget is good considering the circumstances under which it was issued.

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