HDFC’s Deepak Parekh on SC interrogation of RBI loan moratorium

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The chairman of mortgage giant HDFC Ltd, in his annual letter to shareholders, also suggested a one-off real estate loan restructuring, relaxation of external commercial borrowing rules and immediate regulatory changes to allow end-to-end execution. home loans online. .

“The saga of the highest court questioning the RBI over the moratorium was indeed unfortunate. Why should a central bank be accountable in court over the basic principles on which the financial sector operates?” he observed.

The industry veteran said interest payments on borrowings and loans are contractual obligations and when no laws are broken, all efforts at this point should be directed towards economic recovery rather than engage in legal disputes.

“These problems must be solved smoothly and I remain hopeful that the authorities will find solutions to protect its stakeholders,” he said.

Last month, the Supreme Court said there was “no merit in charging interest on interest” for deferred loan payments during the moratorium period announced following the coronavirus pandemic.

Once the moratorium is set, it should serve the desired purposes and the government should consider interfering in the matter because it cannot leave everything to the banks, the court observed.

The RBI’s March 27 circular announcing a moratorium was then amended on April 17 and May 23 by which the moratorium period was extended for another three months, from June 1 to August 31, 2020, on payment of all payments. term loan payments (including agricultural loans, term loans, and personal and crop loans).

In the letter, Parekh praised the RBI for taking on a huge burden to maintain financial stability and also stressed the need for a realignment of loan discount rates.

He said the global economy had never seen demand and supply evaporate simultaneously and that the pandemic had exposed the fragility of health systems and the lack of social safety nets around the world.

At the same time, containment has increased the value of the essentials of life – food, clothing, shelter, and now, the internet.

“There can be no better security in life than a home … HDFC is in the right company and we have been doing business the right way. There can be delays in terms of healing times, but we remain convinced that the inherent demand for housing is intact, ”he said.

According to Parekh, FY20 saw HDFC deliver good performance, but it was by no means an easy year.

Risk aversion in lending increased, further choking credit where it was needed most … We also had our share of disappointments.

“These were about some long-standing relationships that we thought we could trust. When they got into trouble, the legal system took precedence over our recovery efforts,” he said.

He said recovery efforts will continue unabated. “In the most difficult times, recent resolutions in our favor have been encouraging, raising hopes of a changing tide.”

Parekh added that a scenario was emerging where there could be inorganic opportunities for HDFC group companies and some of its subsidiaries will need additional capital for their expansion plans.

“We have also identified new investment opportunities that will help build the next generation of value creators for HDFC. To support this, we are putting in place a roadmap for our future capital needs,” he said. declared.

Parekh said the woes in India’s economy predated the pandemic and pushed for solutions that do not encroach on limited government resources given immense constraints on fiscal finances.

He said the government has rightly recognized the benefits of encouraging housing, given that the construction sector is the second largest generator of jobs and has multiplier effects through its backward and forward linkages. with other industries.

“Some policy changes will go a long way to supporting housing and housing finance in the future,” he said, while suggesting measures to liberalize external commercial borrowing as well as a one-off restructuring of mortgage lending.

If developers don’t have cash flow due to slow sales or a delay in receiving required construction approvals, they can’t complete existing projects or honor their loans, he said. declared.

Even if a lender is willing to help the project remain viable, any change in loan terms, including additional financing, is considered a non-performing loan by applicable regulatory standards.

“Allowing a restructuring of these loans and classifying them as standard assets will make it easier to finance the last mile for these projects,” he said.

Parekh also supported regulatory changes to make it easier to execute end-to-end mortgages online.

“Currently, loans are approved online, but disbursements cannot take place because electronic signatures on mortgage documents or agreements relating to real estate are excluded from the scope of the 2000 Law on Real Estate Technology. ‘information.

“With the immense push on technology in the financial sector, this amendment can easily be facilitated by an ordinance,” he said.

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