HDFC Chairman Deepak Parekh has urged the Reserve Bank of India (RBI) to permit a one-time restructuring for real estate loans, stating that “a pragmatic approach is needed to resolve the financial stress in the real estate sector, without bail-out packages”.
The country is just beginning to recover from one of the longest and strictest lockdowns across major economies, he said. “India’s sheer numbers means domestic demand has to revive. The challenges are daunting, but I remain confident that India will display its resilience,” Parekh said in his letter to HDFC shareholders. He said “the saga of the highest court of law questioning RBI on the moratorium was indeed unfortunate”.
“This (loan recast) has been a long standing request and a measure implemented in the past to revive the sector. If developers do not have cash flows due to a slowdown in sales or delay in receiving requisite building approvals, they can neither complete the existing projects nor can they service their loans,” Parekh said in his letter to HDFC shareholders.
“Allowing the problem to fester, may result in a rise in non-performing loans, which in turn will weaken the overall financial sector,” he said. Further, to repair the sector, real estate prices have to be realistic to reflect current market realities. This would help developers offload their unsold inventory and improve their cash flows, he said. Allowing for a restructuring of these loans and categorising them as standard assets will facilitate last-mile funding for these projects, he said.
On the loan moratorium issue, he said, “Why should a central bank have to be answerable to a court on basic principles which the financial sector operates on? Interest payments on borrowings and loans are contractual obligations. No laws are being violated … all efforts must be channelled towards economic recovery rather than getting into legal wrangles.”
Parekh said there’s a need to amend rules so as to facilitate end-to-end execution of mortgages online. Currently, loans are being approved online, but disbursements cannot happen as e-signatures on mortgage documents or agreements pertaining to immovable properties are excluded from the purview of the IT Act, 2000.
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