Stating that several players in the industry are under stress, Chairman and MD, DHFL pointed out the need for steps on multiple front to arrest the crisis. Excerpts:
While DHFL is under stress, how do you see the macro problem?
Because of the IL&FS issue and uncertainty surrounding any solution, the market confidence is shaken and because of that mutual funds went into a shocked-freeze. So both short-term lending and long-term lending by banks has stopped. Also, while credit demand is still domestically-led and high, supply looks choked across most categories.
Where do you borrow from now?
Even though our asset base is large and we may have contributed significantly to the core sector of the economy, including housing for low and middle income segment, which is a priority area, we are facing this issue. So what choices are left with the sector as a whole in the absence of fresh borrowing from the system — to go sell off your assets, generate liabilities and clear off your obligations. It also shows the shallowness of our debt markets. For a country of our economic size and aspiration, we need to develop debt markets and bond markets.
While you have been selling assets to generate resources, how long can you manage without a liquidity support?
It has been a harrowing task for us and since September 2018. while we have repaid obligations worth over Rs 42,000 crore, the only fresh borrowing in this period was Rs 2,000 crore in November through NCDs. All we have done is to sell our retail assets and we are now in the process of selling our wholesale assets to the same banks. However, if liquidity doesn’t come into the industry, the industry can’t stand tall for too long. It will crumble one after another as everyone is in pain and rightly so, because if the supply side is closed then what can one do. It is not just our problem, many HFCs and NBFCs are under stress. So, the solution has to be a collective one.
What is the progress on strategic sale?
From our perspective, the solution lies in the fact that we are in the process of finalising stake sale with a large strategic investor. So the stake sale process is on and the discussions with potential investors are at advanced stage with due diligence process nearly complete. We are hopeful that it will conclude over the next couple of weeks. It should help the company as a large investor will bring in equity capital as well the power to originate additional debt.
Do you see that the government and regulators are working to resolve the crisis and will a liquidity window at this time solve the problem?
Yes. I am absolutely certain that there is a clear intent within the government and it sees the challenge and the problem. I think the government and the Reserve Bank will have to come together along with the participants and come out with the solutions to be implemented. Multiple things need to be done. One, clearly, is to make money available in the system by flooding the market with instruments that provide liquidity. The confidence needs to be restored. I think the time is of essence. Nine months have already gone and as more time gets spent on analysing the problem, it will only deteriorate the underlying base of financial institutions.
While the SLR can be brought down by three-four per cent to infuse liquidity, there has to be focus on reviving the real estate sector. While liquidity has to be provided, supply bottlenecks need to be removed. Also, while all channels of funding — mutual funds, insurance companies, provident funds and banks — are getting closed, PSU banks have to start lending.
How do you see the credit rating agencies’ move to downgrade your rating to D?
Unfortunately, without getting into actual dynamics of things, people start inferring things. On June 4, when our delay happened, we cured it within the curing period, but did the curing have any impact on the ratings? The moment you assign ‘D’ rating, everyone started taking a mark down in their MF schemes. When you see four notch downgrade in a fortnight, who do you talk to? What’s the review mechanism for knee jerk rating actions? While Crisil and ICRA downgraded our NCDs following the delay on June 4, they even downgraded my CPs in anticipation, even as the CP payment was not due. What kind of predictive analysis is this? They have only perpetuated my problems further.
There is an argument that your books are skewed more toward wholesale?
I had around Rs 80,000 crore of retail book and rest was wholesale. Over the last nine months, I sold almost Rs 42,000 crore of retail asset and what is left is Rs 38,000 crore of retail and rest wholesale. If my retail and wholesale asset was 75 per cent and 25 per cent respectively before the beginning of the crisis, it is now at 50-50.
Mutual funds are saying that they are cautious on HFCs that have ALM mismatch?
So, where do the housing finance companies go, how does one raise long term fund. That means this country needs specialised banks, just like building societies in UK, specialised mortgage banks in Germany and even in the US. Specialised lenders with special windows of dispensation available, going out and raising debt from the market.