In an exclusive interview with ET Now, Keki Mistry, VC & CEO, HDFC, says customers do not look at interest rates that closely. At the end of the day, there are fiscal benefits associated with taking a housing loan.Edited excerpts: Your AUM growth has been between 15% and 18% for the last three years. Can we see you better the AUM growth and the 21% loan growth next fiscal?I do not know what you can– I do not want to talk about what is going to happen this year or next year or the year after. All I can say is that the structural demand for housing in India will always remain strong and it is one of the sectors which will continue to grow for a long term.For the next five, 10 or even 15 years, housing demand in India will grow unabated. There are several reasons for that and we talked about in the past but at the cost of repeating myself; a) Housing has become more affordable today than ever before. b) Penetration level of mortgages in India is extremely low at 10% of GDP. c) The government has a massive focus on housing and is encouraging more people to buy houses and more developers to construct affordable housing units. That is reflected, both in fiscal benefits as well as CLSS subsidy scheme. d) Last but not the least, India has a young population. Two-thirds of our population is below 35 years of age and unlike the West, in India people buy a house only when they are in their late thirties. So, the average age of a first-time homebuyer in India is about 37-38 years and with two-thirds of the population being below 35 years, what it really means is that over the next one, three, five, seven, 10, 15, 20 years all these younger people will get attain an age where they will necessarily have to buy a house and therefore, necessarily have to take a loan. The structural demand for housing in India will always remain strong with a long term view.I want you to break a myth. Do rising rates impact the demand trend? At some point in time, the price of a loan will pinch the borrower but does it have to be one on one correlation?You have to understand that for a person buying a house, a quarter percent rise or reduction in interest rates is really not going to impact his decision. What is most important from a customer’s perspective is confidence. If he is confident of holding his job, if he is confident of the environment, there is a feel-good factor, then he will come and buy a house whether the interest rate is 8.25%, 8.5%, 8.75% or even 9%. So, customers do not look at interest rates that closely, at the end of the day, there are fiscal benefits associated with taking a housing loan. The interest you pay on a housing loan is tax deductible every year to the extent of Rs 2 lakh. The principal repayment of a housing loan is considered as a saving and along with other avenues of saving qualifies for a deduction of up to Rs 1,50,000. So, theoretically, if interest rates go up even by 0.25%, the actual cost to a middle income homebuyer does not go up by a 0.25%. It probably goes up by 15 or 16 or 16 bps depending on how his taxes are structured. Therefore, interest rates do not make that much of a difference.What about HDFC’s own expansion plans? Competition is building in the sector, there is a struggle to enhance market share but on the flip side, housing is an underpenetrated sector. How do you see HDFC expanding with regards to gaining more market share? Is the path going forward one of acquisitions? Will inorganic growth help boost your revenues? First of all, we are open to any kind of inorganic growth from a valuation perspective. if there is some synergy that we can get by looking at any particular company. We did look at CanFin Homes a few months ago but that did not work out for whatever reasons and as you know CanFin has not been sold. So, we could look at inorganic growth but more importantly we have to look at organic growth. My sense is that the organic growth will continue to remain strong because of various factors I talked about. You mentioned competition, but I would just remind you that whilst we grew our loan, our AUM at 18% for the year ended March 2018, the sector as a whole grew at a much lower pace. So, in reality, we would have gained a little bit of market share but we have consistently told our investors over the years that we do not really pitch for market share. We have four objectives that we have targeted very closely over the years; asset quality, operational efficiency which is reflected in the extremely low cost income ratio, the third is growth at a pace that we target for ourselves. The fourth, of course, is profitability which is reflected in profit margins, interest income and so on.These are the four factors we look at and we do not really chase market share. But having said that, over last year, we have gained a little bit of market share because our growth at 18% was higher than the industry growth rate.What is really happening with real estate as a segment? Are we really seeing that revival in both commercial as well as residential real estate markets? Are all the demons of demonetisation, the GST adjustment as well as RERA really behind us? First of all, the commercial real estate market has remained strong for well over a year. Coming to residential real estate, we need to understand that India is a very large country and within that country there are pockets of strong growth and pockets of not-so-strong growth.Look at Mumbai, Gujarat, parts of central and South India, in Bangalore, the growth has remained extremely strong. There are certain cities which are vibrant and growing very rapidly. But there are also other places where there is oversupply and therefore the growth is a little slower. It is very area specific. I would say, growth on an all India basis is reasonably robust with certain areas being extremely strong. I am going to come back to that point of inorganic growth. If you are growing at a significant margin to the average industry, the growth is about 18%. What would acquisition do to your overall growth numbers, especially if it comes at a higher price? Valuations are a concern when it comes to the housing finance sector. Why would you then even look at that route? We would look at that route only if it makes sense from an ROE perspective. Only if there is a synergy and if it makes sense from an ROE perspective, could we look at inorganic growth. Otherwise, our target all these years has been organic growth. If you go back to the last 40 odd years of HDFC. you will see that only on two occasions we have considered inorganic growth. It was during the early 2000s, maybe in 2000 itself. Once we increased our stake in Gruh Finance and the other time, we bought over a East India-based housing finance company. Other than these two instances, our growth over the years has always been organic. We target our return on equity very closely. We are very serious about return on equity and the valuations in the market being what they are, if it leads to a dilution in return on equity then it does not make sense to look at any kind of acquisition. Analysts are pegging core operating profit estimates to see a 20% compounded annual growth over the course of the next five years. Is that a fair estimate? We do not make comments on profit growth or on future growth. So I am sorry. I would not be able to answer that question. But you have to look back at the last five years and get a sense of what kind of growth you will see. We are also moving into a new accounting standard/ How does the new accounting standard pan out is something which would impact profitability. In a negative way you mean? No, no. I am not saying in a negative or in a positive way. I am just saying that a new accounting standard is prevalent now. We are still not very clear on whether there will be any regulatory override on that standard but HDFC’s asset quality, historically, has been very good and because the asset quality over the years has been very good, under a pure IndAS method of accounting there would be a lesser proportion of non-performing loans that we would have compared to what we would have had under the original Indian standards. There are several positives of the new accounting standards. There are obviously also a couple of negatives of the new accounting standards so one has to wait and see how these balance out but at this moment we are waiting regulatory guidance on a few matters which are in discussion with the regulators on.