Deepak Parekh Fighting for Regulatory Clarity for Housing Finance Companies


India needs to clarify regulations to housing finance companies to avoid potential conflicts and put them on an equal footing with banks, according to Deepak Parekh.

The Reserve Bank of India and the Securities and Exchange Board of India have responded to the needs of the economy during the pandemic, Parekh, chairman of Housing Development and Finance Ltd., said in his letter to shareholders. And demand for affordable, high-end properties picked up in the second half of FY21, helped by lower interest rates, continued tax breaks on home loans, and reduced duties. stamp offered by some states.

Still, clarity in some regulations is needed to minimize potential conflicts, Parekh said. Among the questions raised by Parekh are:

Accounting standards

Non-bank lenders, including housing lenders, have followed Indian accounting standards which are still not aligned with prudential guidelines. Banks and insurance companies have not migrated to Ind AS, however. This leads to differences of opinion between inspection teams, regulated entities and even auditors, Parekh said.

“While this is not a level playing field, it may be prudent to at least resolve these open issues sooner rather than later. “

Cutting rate

Mortgage lenders are struggling to retain customers as banks lure them in through lower interest rates or increased loan amounts, Parekh said. To provide a level playing field, housing financiers should also be allowed to cut interest rates without these loans being seen as restructured, he said.

Mortgage loan insurance

Home insurance has grown in importance given the risks associated with climate change and severe weather events, Parekh said. But the insurance loan granted to a borrower is considered a loan other than housing, he said. The insurance loan should be seen as an integral part of a home loan and allowed to be classified accordingly, he said.

Excess liquidity

Another regulatory issue that needs to be addressed is the unintended consequence of penalizing HFCs for maintaining excess liquidity, Parekh said.

HFCs hold large amounts of cash out of caution, but this creates an obstacle to recalibrating their housing and non-housing portfolios to meet prescribed minimum thresholds, he said. “A minor adjustment that could exclude excess cash balances from total assets to arrive at prescribed limits would greatly help HFCs,” Parekh said.

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