Keki Mistry Says Non-NPA Rider In Special Fund For Stalled Housing Projects Could Restrict Benefits
Mistry called the move a welcome step but said that they should wait for the fineprint.
HDFC Ltd. chief Keki Mistry has said that the special window or fund, to help complete stalled housing projects, is a welcome step but more clarity is needed on criteria determining which projects would benefit. He was referring to the announcement that projects labelled as non-performing assets would not be eligible for fund assistance.
The finance minister today announced setting up a special window that will identify affordable and middle-income housing projects that are stalled due to a cash crunch. However, funding will only be to those projects that are not NPAs and not admitted to the National Company Law Tribunal.
Mistry explained that if a project is stuck due to lack of funding and the developer has not made three monthly installments to the lending bank, then it gets classified as a non-performing asset. In which case it will no longer be eligible for last-mile funding through the special window.
“This could restrict the number of projects that will benefit from the special window,” Mistry told BloombergQuint. “That is something that needs to be looked at.”
We have to understand that the definition of NPA as one would read from the scheme might be a little different from what we are referring to, so let’s wait for the definition.Keki Mistry, Vice Chairman and CEO, HDFC
Mistry also said that if the fund will be professionally managed, as the government has announced, then HDFC will be open to making contributions to it.
Watch the full interview with HDFC’s Keki Mistry here...
Read the edited transcript of the interaction here:
Before we get into the details, what do you ake of the announcements by the finance minister?
The external commercial borrowing (relaxation) and setting up of the fund are the two important announcements for the housing sector. There are a number of projects stuck for last-mile funding, where the developer has run short of money after 60-80 percent completion.
The establishment of a professionally-managed fund like this is a very welcome step. It should alleviate the stuck projects’ problems to a great extent. The process needs to be expedited and the money needs to be put as soon as possible. This is because I fear projects stuck would be classified as NPA due to non-payment of installments to the banks. And, money from this window won’t be available if its classified as an NPA.
The Finance Minister suggested projects which are up to 60 percent complete will get assistance from this last-mile fund?
The way I understood is that 60 percent of the project has gotten completed and last-mile funding is required to complete the rest. There will be lots of projects where even 70-75 percent is completed.
Sitharaman also said these will have to be non-NPA as well non-NCLT projects. Will that limit the number of projects that might get assistance from such a fund?
My sense is that we’ll have to wait for the guidelines to understand what is meant when the Finance Minister said non-NPA, because an NPA is a technical thing.
If a developer has been unable to pay 3 monthly installments, the loan gets classified as non performing loan or an NPA. So if it gets classified as non performing loan then based on what the Finance Minister said, money will not be available from this fund which has gotten created.
But we have to understand what the definition is being prescribed to the word NPA, which I am sure will get clarified. It cannot be just a technical NPA, since if a case has gone to the NCLT then let the legal process takes over. That can happen if three installments have not gotten paid because the developer has run short of money.
That was my apprehension as well. The fund size has been announced at Rs 10,000 crore, to be contributed by the government of India and the roughly same amount from outsiders investors - ranging from LIC to private sector institutions to sovereign funds. Is that sufficient and would institutions like HDFC etc be willing to participate.
First of all, to answer your question as the fund is going to be professionally managed and run, we would probably look at making some contributions. What amount and all is something we need to think through. But we would be happy to make some contributions.
If you get a fund of Rs 10,000 crore and if you apply 0.3 times leverage you are looking at about Rs 13,000 or Rs 14,000 crore, which is decent money. I think it can go a long way in putting money into a lot of these kind of projects. I think that a good sum.
Well, there will be number of projects where the last-mile funding that is required is very, very small. It could be as small as Rs 30 crore, Rs 50 crore, Rs 80 crore, Rs 100 crore, those kinds of sums we are talking of. If we are talking of a fund size which can run up to Rs 20,000 crore we are talking of a lot of projects which can get covered.
You believe this solution in terms of size, scope, scale will be a big palliative for the real estate sector right now which is suffering from a variety of different problems.
Absolutely. This would be a boost for the real sector. But we need some clarity on what the Finance Minister meant by saying that this would not apply to NPAs. Because if a project is stalled then it is stalled because of lack of liquidity then the project would not have been able to pay off the loans that were taken for a project on time, which therefore means the loan could technically become an NPL. Every NPL is not taken to NCLT or insolvency.
Then the number of projects that can benefit from a fund like this would be considerably reduced.
I don’t know about considerably reduced; I would not be able to quantify but it will be reduced. We have to understand that the definition of NPA as one would read from the scheme might be a little different from what we are referring to, so let’s wait for the judgment.
On Relaxed ECB Guidelines
The second point the government raised was the issue of external commercial borrowings. They relaxed the guidelines to facilitate the financing of homebuyers who are eligible under Pradhan Mantri Awas Yojana. What are the current norms and what impact will this have?
The money raised from an ECB, the end use of that money from the lenders’ perspective is that it can be used only in projects where more than 50 percent of the area under construction is less than 60 square metres. The PMAY scheme has a lot of sub-schemes. One of it is Credit-Linked Subsidy Scheme. Under CLSS, the funding will be available to projects where area of dwelling is up to 200 square metres. So we are taking about 4,000 square feet. So, it can be relatively large apartments which will get the benefit of ECBs.
Will this result in considerable liquidity relief?
My sense is it will be difficult for many borrowers to go to external market to raise funds. But the housing finance companies and banks should be able to do that and lend money to these players.
Any idea on potential additional liquidity that could come in due to the relaxation of the ECB norms?
I’m sure these things will get quantified over time but it can be quite large. This is because the international funding is available now and the markets are wide open, ability to borrow is there with companies and there is plenty of liquidity in overseas markets at attractive rates.
Will HDFC be looking for this option as source of capital?
We will be looking forward to use this as a source.
Boosting Demand
This is regarding the house building advances to government employees. The interest rate will be lowered and linked to 10-year G SEC yields. This is a demand push for the market.
Yes, it will be a boost as far as government employees are concerned, because it brings down interest rates. But I think the two more impactful announcements are the Rs 10,000-crore fund and ECB relaxations.
What extent of the problems of the real estate sector have bee resolved by these two big announcements? What is still left on the critical-to-do list?
I think is a step in the right direction. It will go to a great extent in alleviating some of the problems and improve sentiments in homebuying. We have seen that the demand for affordable housing continues to be strong.