Road to succession to be a smooth affair: HDFC chairman Deepak Parekh

Ensuring 'frictionless transition' top priority; boards will need 18-24 months to evaluate options, says HDFC group chairman

Housing Development Finance Corporation (HDFC) Chairman Deepak Parekh has said the task of ensuring “frictionless transition” in HDFC group entities is top in his mind.

Succession planning is key agenda for all the groups’ boards and they believe such planning needs 18-24 months to ensure a smooth transition, Parekh said in his annual communication to shareholders.

While leaders within HDFC are passionate about their jobs, reality is that individuals do get on in age, he said. “There is a strong pipeline of talent for various functions across companies in the group. Yet, positions at the helms need boards and their panels to evaluate options, of both, internal and external candidates,” he said. HDFC Bank’s Aditya Puri will step down as chief executive officer in October 2020. Seeking a level-playing field, Parekh batted for allowing housing finance companies (HFCs) to fund land acquisitions. At present, only non-banking finance companies (NBFCs) and private equity (PE) funds are permitted to finance developers to buy land for housing.

“The regulators for the past 12 years have barred banks and HFCs to fund land transactions, yet NBFCs and PE players are permitted to do so. This regulatory arbitrage allows NBFCs and PEs to charge prohibitively high interest rates on developers borrowing to acquire land,” Parekh said.

While the bank’s apprehension towards allowing banks to fund land acquisitions is understandable, HFCs are well regulated under National Housing Board and their core role is to support housing, said Parekh.

“If HFCs of a certain threshold are permitted to fund developers to acquire land for affordable housing, then the current high interest rates are likely to get rationalised. This, in turn, will help to reduce the ultimate cost for a homebuyer,” he added.

Parekh also said regulators should not encourage “lazy housing finance”, referring to poaching of loans due to intense competition. 

The growing practice of housing finance players picking loans off each others’ balance sheet needs to be monitored. Lenders do incur costs while originating loans. It is, thus, logical that some compensation is paid to a lender, especially when a customer is poached within two years, Parekh noted.