Housing Development Finance Corp., India’s biggest mortgage provider, has dodged the bad loans that plagued banks in the U.S. and Europe and plans to increase lending more than 20 percent this fiscal year, said Managing Director Keki Mistry.

Tighter guidelines than at U.S. lenders means Indian mortgage companies aren’t as vulnerable in a slowing economy, Mistry said in an interview in Mumbai yesterday.

“India is not directly affected by the subprime problem, and should consequently have lesser concern about asset quality,” Mistry, 54, said. “The penetration level of financial services products in India is very low as compared to the western world.”

HDFC’s bad debts as a proportion to total loans stood at 1.04 percent on Sept. 30. That’s the lowest first-half figure in a decade, said Mistry. The firm’s average home mortgage of 1.5 million rupees ($30,000) compares with the typical U.S. subprime loan of $250,000, according to estimates by Washington-based Inside Mortgage Finance.

Low default rates may help shield HDFC from the impact of an economic slowdown. India’s $1.2 trillion economy, Asia’s third largest, grew at an average of almost 9 percent since 2004. It may slow to 7.5 percent in the year to March 31, the central bank said.

“Even in the boom period HDFC was careful in lending, doing lots of checks on creditworthiness, and stuck to the low ticket size of the loan,” said Sam Mahtani, who manages $2.3 billion in emerging markets and $300 million in Indian stocks as a director of equities at F&C Investment in London.

`No Stress’

Financial firms worldwide have posted losses and writedowns of almost $1 trillion related to the collapse of the U.S. subprime mortgage market and credit contagion it triggered around the globe.

Indian banks limit home loans to 85 percent of the value of a property, compared with 100 percent loans offered to some borrowers in the U.S. On average, HDFC’s mortgages amount to two- thirds of the value of a property, Mistry said.

“We have seen no signs of stress on the portfolio,” he said. “We give loans to middle-income people who are going to stay in the house. They are neither investors nor speculators.”

The company, which reported a 33 percent jump in profit for the quarter through September excluding one-time items, has fallen 53 percent in Mumbai trading this year. The benchmark index has dropped 57 percent in 2008.

Reddy’s Reforms

Mortgages outstanding are worth 6 percent of gross domestic product in India, less than a tenth the penetration rate in the U.S. and U.K., ensuring demand will grow, Mistry said.

“Nobody has done as badly as the U.S. banks in doing the checks,” said Mahtani. “Balance sheets of U.S. banks have been weakened by the toxic debt they hold.”

Former central bank Governor Yaga Venugopal Reddy two years ago began restricting mortgage lending to stave off a potential increase in bad loans. HDFC boosted lending by an average of 27 percent over the past five years, as a growing economy drove a surge in home prices.

Central bank rate cuts have helped ease a shortage of funds caused by the collapse of firms including Lehman Brothers Inc. and lower borrowing costs may support demand for housing in the coming year, Mistry said. Overnight interbank rates in India have fallen to 6.5 percent after reaching 19.5 percent in October, the highest in 19 months.

Housing Shortage

India faces a shortage of about 25 million houses, a figure that may rise to almost 27 million by 2012, HDFC estimates.

“There is large demand for smaller apartments,” said Mistry. “People need a home to stay in.”

Still, Goldman Sachs Group Inc. this week said prices in some cities may fall as much as 30 percent.

Home prices in smaller towns such as Agra, Ludhiana and Kochi have already dropped an average 15 percent to 20 percent, according to Jones Lang LaSalle Meghraj Property Consultants (India) Pvt.

“House prices should come down,” said Mistry. “They should correct because they have gone up too fast and too sharply, especially the high-value properties.”

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