Loan-switching hurting industry, says Parekh
Deepak Parekh, chairman of India’s largest mortgage lending firm HDFC Ltd, criticised the practice of allowing customers to shift their housing loans from one lender to another at will, saying this does not necessarily ensure growth in housing.
“At industry level, shifting of housing loans from one player’s balance sheet to another does not tantamount to growth in the overall housing market. The overriding objective must always be funding incremental housing,” Parekh said in his address to shareholders, published in the annual report of HDFC. The shifting of housing loans, introduced in 2012 by the Reserve Bank of India (RBI), is relatively hassle-free for the customer, but involves a small processing fee. However, it is damaging for the old lender as an asset liability mismatch is created in the book.
Through the annual report, Parekh once again pitched for allowing housing finance companies and banks to fund land acquisition to developers, arguing that this would enable the final prices of the housing unit to fall. He had raised the issue in last year’s annual report as well.
“To acquire land, developers have to rely on funding by non-banking financial entities and private equity funds, but these are at exorbitant rates,” Parekh said in his address.
The central bank had prohibited housing finance companies (HFCs) and banks from providing funding for land acquisition a decade back fearing build-up of a property bubble.
“While one appreciates the stress that the banking sector is undergoing on asset quality, it does appear illogical to continue to prohibit HFCs from funding land transactions. HFCs understand the needs of developers,” said Parekh.
The HDFC chairman reserved high praise for the current government at the Centre for its housing initiatives.
“This government’s policies on housing are practical and implementable. With the benefit of four decades of experience in this field, I can confidently say that I have never been as optimistic about the housing sector as I am currently,” Parekh said.
The government has pulled out all stops to increase homeownership in the country and every constituent in the housing chain has been incentivised and encouraged to play their role in the affordable housing mission, he said.
Developers in the affordable housing segment can now avail full tax deduction on profits. Further, the government has accorded infrastructure status for affordable housing to open up more avenues of lower cost, longer tenor funding. Customers can also get subventions and subsidies on home loans and can now use up to 90 per cent of their provident fund money for housing purpose.
“No other major sector of the economy has been given such attractive incentives,” Parekh said.
He also expressed his happiness about reputed builders entering the affordable housing space, but speedier approvals are needed, he argued.
The industry veteran, though, chided investors for focusing too much on shortterm quarterly numbers. “Shorttermism is becoming worryingly dominant. I strongly believe time has come for an open dialogue on the perils of extreme short-termism.”
“In any sector, when unrealistic expectations override, there is undue pressure on management to deliver. If this repeatedly happens every three months, it leaves little time to focus on the long-term, big picture. Short-termism undermines a company’s ability to invest and grow,” Parekh said.
“I would like to reiterate that India’s macroeconomic fundamentals have never been stronger than today,” Parekh said, adding India’s structural reforms underway would place the country on a higher growth trajectory.