Deepak Parekh Says RBI Should Expand Bond Buying
Housing Development Finance Corporation Ltd. Chairman Deepak Parekh on Tuesday suggested that the Reserve Bank of India should expand its bond buying programme, among other things.
He said the central banks should directly purchase corporate bonds and commercial papers of the private sector as the primary markets have dried up and no company has been able to raise money.
Speaking to representatives from the real estate sector through video conferencing, Parekh advised real estate developers to offload their unsold inventories at whatever price as they need liquidity at this juncture. The video conference was organised by real estate developers associations -- National Real Estate Development Council and Confederation of Real Estate Developers' Associations of India.
In the monetary policy announced last month, the RBI reduced policy repo rate by 75 basis points to 4.40 percent from 5.15 percent as the country and its businesses fight the Covid-19 outbreak primarily through a lockdown which has now been extended to 40 days from the previous 21 days.
Push For Restructuring Stressed Assets
The housing finance company’s chairman pushed for a one-time restructuring of stressed real estate accounts and relaxation in classification of non performing asset norms to 180 days from 90 days to help the sector which has been severely affected due to Covid-19 related disruptions.
Unless the stressed accounts are restructured, financial institutions will find it difficult to provide additional liquidity to the sector, Parekh said.
Today, most of the developers are in a stressful situation and many of them are NPAs or will become NPAs. So, first of all we have to convince the RBI that in the interest of the future of the industry, you have to allow us to do restructuring. Once you do restructuring, we can give you (real estate developers) additional money, Parekh said adding the recommendation has already been made to the RBI. He said renegotiation on repayment timelines is a better solution than getting into legal tangles. Unwinding from a legal mess will be very painful, he said.
Parekh said the RBI, for some period of time, should extend the classification of NPAs norms to 180 days from the present 90 days. Under the RBI norms, an account is classified as a NPA if it is not serviced for 90 days.
This is absolutely necessary otherwise all lending institutions will have massive non-performing loans and massive provisions to be made. They will start making losses and rating agencies will downgrade everyone and it will be a real disaster because businesses will collapse.Deepak Parekh, Chairman, HDFC
If one-time restructuring and relaxation in NPA norms to 180 days have been done, banks and other financial institutions will be able to offer loans to the developers for a longer period of time, he said,
In the current environment, monetary policy transmission is not going to happen effectively. Yields have risen and not fallen despite the steep repo cut as markets know that central and state governments are going to come to the market to borrow heavily. Banks have and will continue to remain risk averse, Parekh added.