Liquidity will be key to growth post covid-19, says Deepak Parekh
HDFC chief Deepak Parekh said India’s young demographic, entrepreneurship, services and start-up sectors will propel growthHe said real estate prices are still high and need to reduce by at least 20%
Liquidity will be key for companies to survive in the post covid-19 world, where valuation models will undergo drastic changes, Deepak Parekh, chairman of Housing Development Finance Corp. Ltd (HDFC), said on Tuesday.
Normalcy is expected to return in the second half of 2020 and, though the world economy has shrunk by 12% in one quarter, India’s young demographic, entrepreneurship, services and start-up sectors will propel growth.
Parekh suggested a three-pronged approach for the real estate sector, where the Reserve Bank of India (RBI) offers a one-time restructuring of loans, state governments waive stamp duty for a limited period, and developers cut prices, selling inventory quickly even at a lower price and completing operational projects rather than launching new ones.
“Doing business in a lockdown is not easy, selling flats is impossible. We don’t know what customer behaviour will be post covid-19 and what the psyche of workers will be. We should be aware that even a sanctioned line of credit is not equal to liquidity. So companies need to be liquid. Anyone who has committed money, would review it. The good thing is that a lot of private equity money will be available," Parekh said in a webinar organized by real estate industry body Naredco on Tuesday.
Certain sectors such as banks, online delivery and information technology (IT) companies continue to work relatively well, as India is a service driven economy and not primarily a manufacturing one. However, airlines, tourism, and travel have been hit hard, he said.
The challenge is that the Indian economy was already on a slow curve and the health, economic and financial crisis has morphed into one.
There will be large-scale changes in the way business perform after the lockdown and banks will continue to be risk averse towards sectors such as real estate, given the massive non-performing assets (NPAs) it has generated, Parekh warned. Startups, too, will need to stop burning cash, he said.
RBI should extend the bad loans timeline from 90 days to 180 days, at least for 3-6 months, to avoid bad debt, Parekh said. Real estate prices are still high and need to reduce by at least 20%, he said.
“Leverage long-term relationships with banks and use the moratorium as a last resort because there is a cost to it. Don’t let assets slip into NPAs. High borrowing levels can be a double-edged sword and can destroy you in bad times. Enhance equity cushion and take it at whatever price is there," he said.
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