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HDFC Ltd Chairman Deepak Parekh has highlighted the challenge for housing finance companies to retain customers amidst low-interest rates being offered by several banks and increased loan amounts.
“It would be of great comfort for all HFCs to have this issue put to rest,” Parekh said in a letter to shareholders.
“Another niggling point for HFCs is retention of customers. 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,” Parekh said in a letter to shareholders.
Balance transfers only shift assets from one player to another, he said, adding that it does not increase home loans or home ownership at a system level.
“Yet, this is par for the course in a competitive business landscape,” Parekh said, pointing out that onboarding a home loan customer takes a great deal of effort and entails costs as well.
Other regulatory issues
In his letter, which is a part of HDFC’s Annual Report 2020-21, Parekh also highlighted other regulatory issues but said these are his personal views.
Despite differences in interpreting regulations, Parekh said that non-banking financial companies, including HFCs,follow Indian Accounting Standards (IndAS), which is still not aligned with the prudential guidelines.
“This results in differences in opinions between the inspection teams, regulated entities and even the auditors,” he said, adding that it may be prudent to resolve these issues sooner than later.
Insurance loan
He also said that the insurance loan to a home loan customer should be considered as an integral component of a housing loan and be permitted to be classified accordingly.
“Currently, an insurance loan given to a home loan borrower is considered as a non-housing loan. Insurance is voluntary for a home loan borrower,” he said.
Parekh further said that the current regulatory framework might 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,” he said, adding that a minor tweak which could exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs.
Parekh also remained optimistic about the demand for home loans despite the resurgence of Covid infections.
“Despite the economy contracting 7.3 per cent in 2020-21, the demand for home loans surpassed all expectations. Going forward, the risks of recurring waves of infections may result in temporary set-backs, but the inherent demand for homes loans remains stronger than ever,” he said.
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