In his annual letter to shareholders, the elder statesman of Indian finance said but for the Reserve Bank of India’s interventions, the financial system may have been `decimated.’
In a four page letter as part of the mortgage financiers annual report Parekh touched upon recovery from the pandemic, role of regulators and also pointed out some regulatory flaws which need to be ironed out.
Parekh said housing finance companies (HFCs) are susceptible to losing their existing customers to other players who often lure them through lower interest rates or increased loan amounts as there are no prepayment penalties on floating rate loans.
“Balance transfers only shift assets from one player to another; it does not increase home loans or home ownership at a system level… onboarding a home loan customer takes a great deal of effort and entails costs as well. But certainly, 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,” Parekh said.
He also pointed out that HFCs have been following Indian Accounting Standards (IndAS), while banks and insurance companies have not migrated to the new system.
“Often, there are differences in interpreting regulations…this results in differences in opinions between the inspection teams, regulated entities and even the auditors. While this isn’t a level playing field, it may be prudent to at least resolve these open-ended issues sooner than later,” Parekh said.
The HDFC chairman praised the banking and stock market regulators for their proactive response to the challenges facing the economy.
“Without RBI’s timely interventions, much of the financial system may well have been decimated due to the extreme risk averseness in the early days of the pandemic. Since February 2020, the support announced by RBI stood at Rs 15.7 lakh crore, which is equivalent to 8% of GDP. No doubt, the task ahead remains daunting as RBI has to balance the need for growth, facilitate the government’s borrowing programme, rein in inflation, continue with stimulus measures and support sectors deeply impacted by COVID-19,” Parekh said.
Securities and Exchange Board of India (SEBI)’s actions to ease compliance burdens has helped Indian companies raised a record equity capital of Rs 1.9 lakh crore in FY21.
Parekh said that the regulatory framework in its current form unintentionally penalises a HFC for maintaining excess liquidity. “A minor tweak which could exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs.
“These issues are minor teething problems in a regulatory framework that is evolving. The important part is to be able to keep having dialogues with the regulators. RBI has done well to create the Regulations Review Authority along with an advisory group for the same. This committee hopefully will have the ear of both, the regulator and the regulated entities, thereby creating the much-needed bridge,” Parekh said.
