Mumbai: Among Indian financial intermediaries, Housing Development Finance Corp. Ltd (HDFC) has been the least affected by the stock market meltdown that started in January.
Since the beginning of the year, the stock of the mortgage firm has lost some 14% in value, while the Sensex, the benchmark index of the Bombay Stock Exchange, has lost close to 26% and Bankex, an index of the banking sector, at least 34%.
For the quarter ended June, HDFC’s business growth had been around 30% in loan approvals and 28% in disbursements, but Deepak S. Parekh, 63, chairman of the country’s oldest mortgage firm, sees a slowdown in loan growth in August and says the growth will come down in the next few quarters.
Long-term player: Deepak Parekh of HDFC Ltd, the country’s biggest mortgage lender, said his firm aimed at being around even 100 years later and, therefore, he was building a long-term business with a solid base. Ashesh Shah / Mint
Parekh, who predicted the real estate bubble two years ago, says there is still some pain left for developers, who bought land at record prices, and financial intermediaries that have recklessly loaned money. The maximum pain, according to him, will be in the retail segment, followed by the infotech and commercial segments, and, finally, the residential segment.
He also says that there is a great opportunity for an asset reconstruction fund in real estate sector as many projects will get stuck and companies will need to be bailed out.
In a free-wheeling interview on Monday, Parekh touched upon a range of issues: interest rates; taking the insurance and asset management arms of HDFC to market; reforms in the insurance sector; and missed opportunities for the country. Edited excerpts:
You have been warning that the real estate sector has been over-heated. Is the correction over?
I personally feel that the developers have gone totally haywire. They were buying land as if there is no tomorrow. That was a big mistake.
The Reserve Bank of India (RBI) prohibited all of us from lending money to buy land. In fact, the RBI directive was repeated – first, it was meant for banks but later (it was) extended to housing finance firms too. It expected the asset bubble. RBI had said that banks can only fund the developers after the projects get the commencement certificate. We followed the RBI norms and most of us are safe today.
When we stopped lending, foreign equity flowed in. A host of private equity funds and venture capital funds came to invest in land and they all were promised the moon… phenomenal rates of interest. Most of the transactions were debt transactions from overseas in the garb of equity.