One-Time Restructuring Of Loans May Not Help All Developers: HDFC’s Keki Mistry
Keki Mistry. (Photographer: Vivek Prakash/Bloomberg)

One-Time Restructuring Of Loans May Not Help All Developers: HDFC’s Keki Mistry

A one-time restructuring of loans may not necessarily help all developers as very few will be able to meet the criteria laid down for it, according to the chief of India’s largest housing financier.

There are two challenges in front of developers if they’re to benefit from the one-time restructuring of loans, Keki Mistry, vice chairman and managing director at Housing Development Finance Corp. Ltd., said during his video address at a real estate and infrastructure summit organised by Naredco. “One is getting investment grade credit rating and the other is fulfilling the required financial ratios.”

He pointed out getting credit ratings for projects that are stuck would be challenging. “Maybe that requirement could perhaps not have been there,” Mistry said. “And instead of having that requirement you could have had the board of that company approving it or something on those lines.”

The Reserve Bank of India had in August permitted a one-time restructuring of loans amid the ongoing Covid-19 crisis. Large corporate loans and stressed medium-sized borrowers were allowed to restructure their debt provided they were classified as standard on March 31, 2020, with the window available till March 2021.

The ratios required for restructuring are largely designed for manufacturing companies, hotels, industries not really for the real estate sector, he said. “So, we could have had a different set of ratios for the real estate sector”.

The Covid-19 lockdown decimated demand for the real estate sector, which is already saddled with inventory even before the virus outbreak. In such a situation, Mistry advised developers to remain well-capitalised.

“It’s very important for the developers not to be over-leveraged. Don’t just keep borrowing money,” he said. “If you have five or six projects and for each of these projects you have gone and borrowed money then you have created so much leverage that when any lender looks at the balance sheet, it does not look good.”

Demand for residential properties, Mistry said, has picked up. “Most people are beginning to believe that this is perhaps the best time to buy a property. Both in terms of affordability or in terms or interest rates or in terms property prices haven’t really gone up in the last four years.”

Mistry also indicated non-performing loans can fall in the next three-four quarters only if “the demand should continue and we shouldn’t get a second wave of the pandemic as some of the European countries have seen… And we shouldn’t have another major lockdown.”

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