HDFC's Deepak Parekh once again pushes for one-time debt recast for developers

LIVEMINT
July 03, 2020

MUMBAI: Deepak Parekh, a doyen of India's banking and finance sector, has again suggested that the Reserve Bank of India (RBI) should permit a one-time debt recast of developer loans.

In his letter to shareholders, the hairman of Housing Development Finance Corporation (HDFC) said this has been a long-standing request and a measure implemented in the past to revive the sector.

“If developers do not have cashflows 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," he said.

According to Parekh, even if a lender is willing to help the project stay viable, any modification in the terms of the loan, including additional funding is construed to be a non-performing loan under the current regulatory norms.


“Allowing for a restructuring of these loans and categorising them as standard assets will facilitate last mile funding for these projects," said Parekh.

This is not the first time Parekh is seen pitching for a one-time debt recast of real estate loans. News agency PTI reported on 28 January that ahead of the presentation of the Union Budget 2020-21, Parekh pitched for a one-time loan recast for realty projects.

“We are talking to the regulators, we have spoken to the finance ministry, one-time restructuring is absolutely necessary," Parekh was quoted by PTI as saying.

Then again in April, PTI reported that Parekh has pushed for a one-time restructuring of stressed real estate accounts and relaxation in classification of NPA norms to 180 days from 90 days to help the sector.


Led by the Indian Banks’ Association (IBA), lenders have sought a one-time debt recast of loans from the central bank, a proposal yet to be approved. Bankers expect asset quality to take a beating once the moratorium ends. Rating agency Crisil estimates that bad loans will rise to 11-11.5% by March 2021 from the 9.6% expected for FY20.

Meanwhile, Parekh also said that the saga of the highest court of law questioning the RBI on the moratorium was indeed unfortunate. He was referring to the case in the Supreme Court where the decision to levy interest on loans during the RBI-permitted loan moratorium is being scrutinised.

“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," said Parekh.

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