What all HDFC chairman Deepak Parekh said in his message to shareholders -TOP POINTS

In a message to shareholders, HDFC Ltd Chairman Deepak Parekh said that home loan demand last year performed exceptionally well despite huge fall in the country's GDP due to Covid 19 pandemic.  

Hailing the roles of Securities Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), HDFC chairman Parekh said, "Covid 19 waves can temporarily affect the home loan demand, however, the company's demand is robust from earlier."  

The company's individual loan disbursements performed well during FY21 and the demand pick-up was much faster than HDFC had anticipated in the latter part of the year, he added. 

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HDFC reported 3 per cent growth in its individual loan disbursements during the year. 
Additionally, in the current environment wherein the COVID-19 pandemic has laid bare how fragile life can be, he said there can be no better protection for a borrower than home loan insurance and home insurance. 

He also urged the regulator to be answerable to the needs of the economy. He said nothing could be better than taking home loan insurance and home insurance for those borrowing money. Now that people have actually started feeling the need life insurance, he suggested that insurance loan for a home loan borrower should be considered as an integral component of a housing loan and be permitted to be classified accordingly, as it protects both the customer and the HFC. 

Insurance provides safety to both customers and Housing Finance Company (HFC). "As per new regulatory norms, the rule to punish HFC over maintaining extra liquidity can affect negatively. HFC could be provided relief by fixing liquidity limit to a specific level." 

Meanwhile, talking to news agency PTI, he called for ironing out of regulatory wrinkles. HDFC Chairman raised concerns about housing finance firms being able to retain customers as no prepayment penalty on floating rate loans is leading to other players luring away borrowers through lower rates and increased loan amounts.  

Onboarding a home loan customer takes a great deal of effort and entails cost as well, Parekh said in his message to shareholders in the company's annual report 2020-21. 

Retention of customers is a niggling point for HFCs (housing finance companies), he said.  

"Lenders 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, a lender can take over a home loan rather effortlessly," he said. 

For selling agents who are not tied-agents, it is a win-win situation as long as they are getting paid a commission twice over the same borrower's loan, Parekh said.  

The chairman of the country's largest mortgage lender further said balance transfer of loans only shifts assets from one player to another, and it does not increase the loan or home ownership at a system level.  

"The issue is that 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," he said. 

Equally, given the risks around climate change and abrupt weather patterns, home insurance becomes a key risk mitigant. 

Currently, an insurance loan given to a borrower is considered as a non-housing loan. Also, buying insurance is voluntary for a home loan borrower. 

Parekh also pointed out the issues that are arising out of large amount of liquidity, saying the current regulatory framework "may have the unintended consequence of penalising a HFC for maintaining excess liquidity". Larger amounts of liquidity are being held by HFCs out of abundant precaution. "But surely maintenance of higher liquidity should not become the hindering factor leading HFCs to recalibrate their housing and non-housing portfolios so as to meet the prescribed minimum threshold limits of assets in housing finance," he said.