Deepak Parekh Bats For Regulatory Clarity For Housing Finance Companies

India needs to provide regulatory clarity to housing finance companies to avoid potential conflicts and bring them on a par with banks, according to Deepak Parekh.

The Reserve Bank of India and the Securities and Exchange Board of India were responsive to the needs of the economy during the pandemic, Parekh, chairman as Housing Development and Finance Ltd., said in his letter to shareholders. And demand for affordable and high-end properties recovered in the second half of FY21, aided by lower interest rates, continued fiscal benefits on home loans, and stamp duty cut offered by some states.

Still, clarity in certain regulations is required to minimise potential conflicts, Parekh said. Among the issues raised by Parekh are:

Accounting Standards

Non-bank lenders, including housing financiers, have been following Indian Accounting Standards which are still not aligned with the prudential guidelines. Banks and insurance companies, however, haven’t migrated to Ind AS. This results in differences in opinion between inspection teams, regulated entities, and even auditors, Parekh said.

“While this isn’t a level-playing field, it may be prudent to at least resolve these open-ended issues sooner than later.”

Cutting Rates

Mortgage lenders struggle to retain customers as banks lure them through lower interest rates or increased loan amounts, Parekh said. To provide a level-playing field, housing financiers should also be allowed to reduce interest rates without such loans being seen as restructured, he said.

Home Loan Insurance

Home insurance has gained importance given the risks around climate change and abrupt weather patterns, Parekh said. But the insurance loan given to a borrower is considered a non-housing loan, he said. Insurance loan should be considered as an integral component of a housing loan and be permitted to be classified accordingly, he said.

Excess Liquidity

Another regulatory issue that needs to be addressed is the unintended consequence of penalising HFCs for maintaining excess liquidity, Parekh said.

HFCs hold large amounts of liquidity out of abundant caution but it creates a hindrance in recalibrating their housing and non-housing portfolios to meet the prescribed minimum thresholds, he said. “A minor tweak which could exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs,” Parekh said.