Developers Can Get Last-Mile Funding If RBI Tweaks NPA Norms, Says HDFC’s Keki Mistry

Keki Mistry suggested that the Reserve Bank of India could reconsider its asset classification norms to allow last-mile funding for developers of stalled projects as the real estate sector battles a cash crunch.

The current norms don't allow lenders to extend loans to such companies as it would be classified as a non-performing asset, Mistry, vice chairman and chief executive officer at Housing Development Finance Corporation Ltd., told BloombergQuint in an interview. He was referring to accounts classified as bad loans.

“Earlier, real estate companies would depend on sale of homes to receive last-mile funding and finish their project. Now customers want to only buy flats which are completed,” Mistry said. “If the RBI could reconsider its guidelines for companies where there is still equity value, it could help the sector.”

Developers are finding it difficult to raise funds since capital dried up for non-bank lenders after the surprise defaults of the IL&FS group a year ago. That added to the stress for the sector recovering from Prime Minister Narendra Modi's overnight cash ban and stricter housing law. And lenders have turned cautious.

HDFC was doing “very selective” lending to non-individual borrowers such as real estate companies, Mistry said earlier in the day after the mortgage lender released its July-September earnings. Only 3 percent of incremental credit growth during the year was due to the non-individual book, he said.

The company, however, has not written off such borrowers completely. According to Mistry, HDFC is closely watching the way the business environment develops so it can accelerate its lending to these borrowers as soon as the tide turns.

The government in September proposed a Rs 10,000-crore real estate fund for stalled projects and HDFC was said to be one of the investors in it.

“We are awaiting details of the governance structure of the fund. We will decide the level of our participation after that,” Mistry said.

Despite the stress in the economy and for real estate companies, HDFC is not seeing much stress in the affordable housing space, which continues to grow.

Affordable housing contributed to 18 percent of fresh loans by value in the July-September quarter, Mistry said. This has also brought down the value of the average loan for HDFC to Rs 26.6 lakh from Rs 27.7 lakh in the preceding three months.

HDFC reported Rs 3,962 crore net profit on higher net interest income and a one-time benefit of Rs 1,627 crore from the sale of stake in Gruh Housing Finance Ltd.