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RBI policy on realty loan to benefit both HFCs and banks: Keki Mistry, HDFC

If the thousands of stuck projects all over the country get completed, not only will the NPL issue get partly addressed, but more importantly, it will give confidence to home buyers to purchase real estate in a stronger manner, says Keki Mistry, VC & CEO, HDFC.

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Last Updated: Feb 06, 2020, 05.41 PM IST
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There will be no downgrade of commercial realty loan, if the delay is genuine. What does this mean for commercial real estate?
There are two reasons why projects get delayed or projects get stuck. One reason is because of approvals taking more time to come. Like for example, if environmental approvals take more time to come, the project gets delayed and because it gets delayed, it gets classified as a non-performing loan. RBI has very correctly said that if the reasons for the delay are genuine, then the project will not be classified as a non-performing loan.

The second issue which causes stuck real estate projects is lack of funding or non-availability of last mile funding that requires one-time restructuring of real estate loans. That has not been addressed in this credit policy, but the first issue has got addressed.

Do you think it will be easy to identify genuine as well as non-genuine delay?
It is easy to identify genuine delay because developers will be able to tell you what has caused the delay and the delay could be because of some approval taking time or something having gone to a court for a decision or something of that sort. Identifying genuineness of delay is not a problem. It can be done easily.

Since the concern is on the liquidity aspect for the real estate sector, how beneficial will this be? Would it address a lot of concerns?
There are two parts to this. One is availability of liquidity and the other is willingness to lend money. The issue of availability of liquidity is not a major issue today. There is plenty of liquidity in the system and therefore availability of money for a project is not a challenge at all. The second is the reluctance to lend money to real estate projects. That is a function of risk averseness and unless that risk averseness gets tackled, project funding would continue to remain a bit of a challenge.

What does this development mean for housing finance companies that have a significant exposure to the sector?
It is beneficial to any lender, whether it is housing finance company or a bank, because there were two ways assets were getting classified as non-performing loans. One of the ways they were getting classified is non-performing loans have been tackled.

Asset quality for the sector sees some signs of improvement from here on. What is the outlook according to you?
The asset quality issues will start getting positive if the stuck projects start getting resolved. The important thing is that thousands of stuck projects all over the country have to get completed because if these get completed, not only will the NPL issue get partly addressed, but more importantly, it will give confidence back to home buyers to purchase real estate in a stronger manner.

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