Let HFCs rejig terms without recast label, says Parekh

(This story originally appeared in on Jun 24, 2021)

Mumbai: HDFC chairman Deepak Parekh has called for a dispensation that will allow housing finance companies (HFCs) to convert loans to existing borrowers by offering them better terms without the loan being classified as ‘restructured’.

Parekh, the pioneer of housing finance in India, also called for reckoning financing for mortgage insurance as part of the home loan and make insurance more accessible. In his letter to shareholders in the company’s annual report, Parekh said that direct selling agents aid the churn in home loans as they get a commission twice for the same borrower’s loans. Parekh said that while this is par for the course in a competitive market, “an endeavour to retain a performing customer, which could entail a change in the rate of interest, is not akin to a loan being restructured”. “It would be of great comfort for all HFCs to have this issue put to rest,” he said.

Regulators and investors tend to view restructured loans with caution as they believe this is one of the indications of financial stress. On allowing insurance as an integral part of the home loan, Parekh said that the cover protects both the borrower and the HFC.

On the new norms which require HFCs to maintain 50% of assets in housing loans, Parekh said that a minor tweak to exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs. In its current form, the norms discourage HFCs from having large liquid balances.

Parekh said that in FY21, despite the economy contracting 7.3%, the demand for home loans surpassed expectations. “Going forward, the risks of recurring waves of infections may result in temporary setbacks, but the inherent demand for home loans remains stronger than ever,” said Parekh.

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