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Government, RBI Must Encourage Lending To NBFCs, Says HDFC CEO Keki Mistry

NBFC crisis exacerbated challenges for real estate companies, already struggling due to GST, RERA and demonetisation, says Mistry.

Since the liquidity crisis, not one company has defaulted and only one has delayed payment, HDFC CEO Keki Mistry said, referring to DHFL. (Photographer: Vivek Prakash/Bloomberg)
Since the liquidity crisis, not one company has defaulted and only one has delayed payment, HDFC CEO Keki Mistry said, referring to DHFL. (Photographer: Vivek Prakash/Bloomberg)

The chief executive of Housing Development Finance Corporation Ltd. has urged the government and the Reserve Bank of India to encourage lending to non banking financial companies and mortgage lenders, which bore the brunt of a liquidity crunch after the IL&FS crisis.

“Risk averseness that set in the system has reduced to some extent but it hasn’t fully reduced,” HDFC CEO Keki Mistry told BloombergQuint in an interview. “The government and RBI should meet with bankers to give them the confidence to start lending again.”

Defaults by Infrastructure Leasing & Financial Services Ltd. and its subsidiaries led to concerns that NBFCs would be unable to refinance their market borrowings, impairing growth. The risk stemmed from tight liquidity conditions followed by a trust deficit due to the defaults.

Since the liquidity crisis, not one company has defaulted and only one has delayed payment, Mistry said, referring to Dewan Housing Finance Corporation Ltd.

The NBFC crisis exacerbated challenges for real estate companies, which are already struggling due to introduction of Goods and Services Tax, demonetisation and a legislation that protects the interests of buyers. Yet, Mistry expects strong growth in the housing sector for the next 10-15 years.

HDFC, he said, lends to the top developers, financing only their projects and not balance sheets. “This project financing is collateralised by the project itself which the developer is executing.”

At Rs 5,880 crore, HDFC’s provisioning, Mistry said, is above regulatory requirement of Rs 3,220 crore. The chief of India’s largest mortgage lender also said he doesn’t perceive risks to the retail home loan segment, adding that the company is happy to buy housing loan portfolios, not companies.

Mistry suggested measures to revive the real estate sector. They include:

  • Increasing tax deduction limit over interest component on housing loans from Rs 2 lakh to Rs 3-3.5 lakh if house is bought in the next 24 months.
  • Extension of credit-linked subsidy scheme under Pradhan Mantri Awas Yojana to all parts of India and to those owning ancestral property.
  • Reduce stamp duty rates, which are still very high in parts of India.
  • Softening of regulatory environment to lend money to stuck projects.
  • Setting up a fund with contributions from government, private sector to revive such projects.

Mistry hoped that the National Democratic Alliance, in the upcoming Union Budget 2019, would focus on job creation and growth. And he wouldn’t worry if the headline fiscal deficit number falls 10-15 basis points as huge investments are needed to boost the economy.

Watch the full interaction here: