Confidence among bankers to disburse loans missing: HDFC's Renu Sud Karnad

Demonetisation, RERA, and GST did cause some uncertainty and people stopped buying homes, as they didn't see homes being delivered, says managing director of HDFC Renu Sud Karnad

Renu Sud Karnad, managing director at HDFC since 2010, speaks to Nidhi Rai on the situation in the sector and her views on policy. Edited excerpts:
 
How is demand looking for individual (housing) loans and where is it coming from?
 
Mumbai is looking up, Pune and Bengaluru are doing well, Delhi and Chennai are comparatively slower. Otherwise, at all places, every city is doing better than last year. The numbers of applications for new loans have gone up everywhere and a lot of the demand is coming from houses of less than Rs 1 crore from tier-II cities and the affordable housing range of between Rs 20 lakh and Rs 50 lakh. 

 

How is the affordable housing segment doing? Will it get further traction in 2020?
 
I think that sector has already picked up. If you look at the PMAY (Pradhan Mantri Awas Yojana) scheme, we have done more than 140,000 applications in just about three years. A huge number and these are all first-time home owners. So, house owning of people is going up.
 
Do you anticipate that asset quality in the non-individual segment would remain under pressure or see an improvement there? Are you cautious in lending to them?
 
For non-individuals, we are cautious. This is happening because sales came down, for various reasons. In the span of one year, demonetisation, RERA, and GST happened. This did cause some uncertainty and people stopped buying homes, as they didn’t see homes being delivered.  I think we need to give developers time, for six months to three quarters, for things to improve.

 
What does HDFC plan to do with the excess liquidity on its balance sheet?
 
Having excess liquidity on the books during a difficult period is a good thing. It provides the confidence to look at inorganic growth, as good assets during such periods might be available at reasonable valuation.  As you know, we recently bought stake in a health insurance company and increased our stake in an education finance company  from around 90 per cent  to 100 per cent.  We are open to buying good housing finance portfolios, if they meet our criteria.
 
What can be done to ease the situation in real estate?

 
The Rs 25,000-crore fund announced by the (central) government is a good step but the sector also needs sentiment to change. Green shoots are happening but, yes, builders are still not getting money. NBFCs and banks are not lending to builders, as risk aversion has set in.  Also, the regulation on NPA (non-performing asset) classification is making things difficult.
 
Currently, the Reserve Bank (RBI) requires that any additional funds provided to a project which is  an NPA be classified as NPA from day one. Most of the stuck projects are likely to have already been  classified as NPAs with some lender; hence, some of these, which could still have equity value, will also not get fresh funding. And, if these do not meet the conditions set under this Rs 25,000-crore fund,  it is difficult  to envisage how such projects will ever be completed. Also, the need of the hour is that at least this fund announced by the government should quickly get operational and the money be disbursed.

 
RBI has said that there is enough liquidity in the system. Then, why is it not showing at the ground? Doyou see the liquidity issues solving in the near future?
 
RBI is right when it says there is no liquidity issue. Banks are not lending as they are scared of lending. Though the prime minister has said genuine business decisions will not be questioned, the required confidence among bankers to disburse the loans is missing. 
 
With some HFCs (housing finance companies) getting out of business, how much does it help you in capturing the market?
 
It is difficult to understand the market share because there is no report per se. But, I am sure we might have picked up one per cent or more market share, as we have grown faster than the industry.  Having said that, some of   these lenders you are referring to were largely into loans against property (LAPs), somewhere in the affordable housing segment but more in the unorganised sector. That is not exactly our target market. 

 
What can be done to improve (interest) rate (change) transmission?
 
RBI has done rate cuts but that doesn’t mean the cost of funds has also come down. That depends on many issues, like what are your NPAs/recoveries are like. If one has too many bad loans, he will have to also cover that cost. There are so many different avenues of funding available which also determine the cost of funds and (resolving) all this can take some time. 
 
What are the challenges of the NBFC-HFC space?
 
We are not impacted by the crisis because of the business discipline we always follow, both on the liability and asset side. I think the NBFC crisis is going to linger for some more time, unless the banks give NBFCs some money. The biggest challenge is how NBFCs raise funds.

 
Does the government need to spend more and worry less about its fiscal deficit? What can it do to push consumption?
 
Government needs to think about how to provide more money in the hands of people. You need to leave money in people’s hands for them to spend. For example, when MGNREGS (the rural job work guarantee) happened, rural consumption went up, as people had more money to spend.
 
Your wish list from the Union Budget?
 
Rationalising personal income tax rates in a manner that more money is available with people   for consumption can start a virtuous cycle and help economic growth. If people have money, they are less worried about their future and,  sometimes, they spend more than what is required. Though we are running a tight fiscal, this step could be considered, as India is largely a domestic/consumption economy.

 
What doers HDFC plan to do with the excess liquidity in the balance sheet?
 
We do not raise capital frequently. We first raised equity in 1994, in 2007, and in 2018. This capital, which we raised after 11 years, must last for several years and we do not expect to raise capital for a very long period of time.
However, having excess liquidity in the books during difficult period that the sector has seen over the past year is a good thing, and provides confidence to look at inorganic opportunities as good assets during such periods may be available at reasonable valuation. We recently bought stake in one health insurance company and also increased our stake in the education finance company from around 90% to 100%. We are open to buying good housing finance portfolios if the credit standards meet our criteria.