[ecis2016.org] Ahead of the presentation of the Union Budget 2020-21, the largest pure play home financier, HDFC, has pitched for a one-time loan recast for realty projects
HDFC chairman Deepak Parekh, on January 28, 2020, said that they were talking to the regulators and the Finance Ministry, on a one-time restructuring of loans for realty projects. “We have requested the NHB (National Housing Bank, sector regulator) and others to take a relook at the provisioning and the NPA issue on projects that are stuck and need the last mile funding,” Parekh said.
You are reading: HDFC pitches for one-time loan recast for realty projects
He said lenders were not able to write new loans for projects, because a new borrowing by an entity which is already a non-performing asset, becomes an NPA on day one. The comments come amid difficult times faced by the realty sector, which has forced the government to announce a Rs 25,000-crore fund to push stuck projects. It can be noted that the RBI has discontinued the practice of loan recast for the last few years but has created an exception for small businesses after governor Shaktikanta Das took over.
Parekh said there have been precedents of similar one-time reliefs being allowed by the RBI in the past, including in 1993 and also after the global financial crisis. He said there are a host of reasons beyond financial stress of the promoter alone, which lead to NPAs in the case of realty projects, including lack of environmental, tree authority or NGT approvals, which stop a project from taking off. When asked if he has heard from either the regulator or the Finance Ministry, Parekh replied in the negative.
FM meets realtors and home buyers, assures of steps to boost liquidity and demand
The government has said that it will soon address issues affecting the real estate sector, after industry bodies and home buyers met the finance minister to flag their concerns regarding the liquidity crunch, demand slowdown and stalled projects
August 12, 2019: Finance minister Nirmala Sitharaman, on August 11, 2019, held two separate meetings – the first with the two apex realtors’ industry bodies CREDAI and NAREDCO and the second with home buyers’ associations, to discuss the issues concerning the real estate sector and steps to be taken, to strengthen the industry. Housing and urban affairs minister Hardeep Singh Puri, minister of state for finance Anurag Thakur and top officials from the departments of economic affairs, revenue, housing, CBDT, corporate affairs and RERA, were also present in the meetings.
According to sources, representatives of CREDAI and NAREDCO said that there was ‘unrest’ in the sector, because of the liquidity crunch and poor sales and demanded that banks and NBFCs should be encouraged to fund projects. They also expressed concern that the situation could worsen during the coming festive season, when generally, demand is higher. There would be a separate high level meeting, under the chairmanship of the cabinet secretary, in the next few weeks to discuss setting up of a stress fund to deal with stalled projects and bail out lakhs of stuck homebuyers, sources added.
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Briefing the media after the meeting, Puri said: “Lot of useful discussions happened at the meeting with the real estate industry. We looked at a number of issues, clarified a number of issues and the government will be addressing these issues in the days to come.” CREDAI chairman Jaxay Shah said, “The government is cognisant about the matter affecting the real estate industry, including the liquidity crunch and taxation issues. We are very hopeful to have some good and tangible results, in the coming weeks.” NAREDCO president Niranjan Hiranandani said: “As you know, the real estate industry is going through a crisis, as is the rest of the whole economy. The positive part is that the government understood that we need to take this thing forward and we need to do it quickly,” he said.
To boost demand and address liquidity issues, the industry bodies suggested various measures, including reduction of interest rates on home loans to 7% and withdrawal of the recent NHB circular, prohibiting subvention schemes. They also said the real estate regulators established under RERA, should be the first point of grievance redressal for home buyers. Meanwhile, home buyers’ body Forum for Peoples’ Collective Efforts (FPCE) president Abhay Upadhyay said 5 lakh customers are stuck across the country, due to delayed projects. He demanded creation of a Rs 10,000-crore stress fund, to complete such projects and provide relief to these home buyers.
NHB’s infusion of liquidity will not help small HFCs: Aadhar Housing Finance CEO
Liquidity infusion facility by the NHB would not be of much help, to sustain small housing finance companies (HFCs), an official has said
August 5, 2019: The union Finance Ministry, on August 2, 2019, said the National Housing Bank (NHB) would infuse an additional Rs 10,000 crores in non-banking finance companies (NBFCs), with a view to improve the flow of funds for housing loans. Reacting to the announcement, Aadhar Housing Finance MD and CEO, Deo Shankar Tripathi said, “Based on the 15% of net owned fund (NOF) criterion, the amount available to HFCs having NOF of Rs 50 crores or Rs 200 crores, will be inadequate. These small companies cater mostly to informal sector.” In order to boost the affordable housing sector, the government should support small HFCs, which have been facing liquidity crunch, Tripathi said.
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Most of the 100-odd HFCs have NOF between Rs 50 and 200 crores and they will get anywhere between Rs 7.5 crores and Rs 30 crores, based on the 15% of NOF formula, he said. Tripathi, however, applauded the liquidity infusion move by the NHB. Elaborating on the grim situation of lending by HFCs, he said only a handful of small HFCs are actively lending at present. He suggested that the NHB may consider increasing the NOF criterion to at least 40%-50%, keeping the other criteria same, or even reduce the upper limit of Rs 500 crores to Rs 400 crores. “Otherwise, this benefit will go to the bigger HFCs, which are less affected by liquidity crunch,” he said.
Imminent crisis in NBFC sector: Corporate affairs secretary
There is an ‘imminent crisis’ in the NBFC sector, as misadventures by some large entities and credit squeeze present a perfect recipe for disaster, a senior government official has said
May 13, 2019: Corporate affairs secretary Injeti Srinivas, has warned said that there is an imminent crisis in the NBFC (non-banking financial company) sector.
“There is a credit squeeze, over-leveraging, excessive concentration, massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster,” Srinivas said. In recent months, the country’s financial system has been grappling with multiple woes in the wake of the turmoil at diversified IL&FS Group, as well as debt defaults by some other large entities.
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Srinivas also said that corporate governance in India was being put to the test. However, he added that ‘responsible’ companies were managing the risk well and were not facing such a dire situation. “It is a defining moment. The way things are moving, in the medium to long term, it will be for the good. In the short term, there can be turbulence,” he said. “If you are responsible, you manage the risks. There are many companies in the country that have strong corporate governance. They take risks but manage them as well. So, they do not face such a dire situation that some others are facing today,” Srinivas said.
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Amid instances of the situation of non-performing assets (NPAs) being linked to external factors, Srinivas noted that it would not be a convincing explanation. “To say that the situation (NPA) can be attributed entirely to external factors and business risks, is not a convincing answer, because there is something known as responsible behaviour,” he emphasised.
Earlier this month, former prime minister Manmohan Singh said the banking sector was ‘under severe stress’ and the way out of the mess, was to reverse some ‘gross distortions’, work closely with the RBI, re-start the process of credit delivery and ensure sufficient liquidity and cash in circulation.
NBFC, HFC heads, meet PM Modi over liquidity issues
Representatives from NBFCs and HFCs have met prime minister Narendra Modi, with suggestions on how to revive the sector, which is facing liquidity issues following the defaults by crisis-hit IL&FS
December 27, 2018: Representatives from non-banking finance companies (NBFCs) and housing finance companies (HFCs), on December 26, 2018, held a meeting with prime minister Narendra Modi, to brief him on the challenges faced by these companies. “After the IL&FS crisis, the government has taken many positive steps but as an industry, through Assocham, we were trying to give a message that those steps were not enough and accordingly, we had to bring it at the highest level,” Assocham president BK Goenka said, after the meeting. IL&FS Group had defaulted on a series of debt repayments, raising concerns that default by a large NBFC like IL&FS, would create a liquidity crunch in the financial market.
Goenka said the prime minister assured that the government would take all necessary measures, to address the industry’s concerns. The government is positive about the situation and the sector should see some positive outcomes in the coming days, Goenka said. Banking secretary Rajiv Kumar was also present at the meeting, he said.
“Today, the problem is risk aversion – because of one failure, people do not want to lend to NBFCs and HFCs,” he said, in an apparent reference to IL&FS.
“So, whatever repayments are coming, they are going to repay the existing loans. Therefore, the growth has virtually come to a halt in the last few months in this sector. In order to open that up, you need to bring in confidence,” said Srei Infra Finance vice-chairman Sunil Kanoria, who was also part of the meeting.
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During the meet, Assocham suggested that systemically-important NBFCs must be allowed to accept public deposits and to revive HFC lending, especially towards individual home loans, they should be permitted access to National Housing Bank’s refinance facility. Towards this, HFCs should be given time till December 2020, to comply with the requirement that individual home loans should be more than 50 per cent of their assets. It has also demanded that the Reserve Bank of India provide a liquidity window for NBFCs/ HFCs against sale of secured loans, by taking appropriate margin on these secured loans, maybe at a higher rate, to help restore confidence in the sector.
Others present in the meeting with the PM included Indiabulls Group’s chairman Sameer Gehlaut, DHFL’s chairman Kapil Wadhavan, L&T Finance’s managing director Dinanath Dubhashi, Sriram Trans & Finance’s MD Umesh Revankar, Finance Industry Development Council’s chairman Raman Agarwal and Aditya Birla Capital’s chief executive officer Ajay Srinivasan.
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