State Bank of India chairman Rajnish Kumar on Wednesday said that housing finance companies should behave like housing finance companies and should focus only on lending to individual retail borrowers. Speaking at the Indian Mortgage Leadership Conclave organised by India Mortgage Guarantee Corporation, Kumar also said that there is a need to cap the amount of retail and developer loans in the ratio of 75%:25% of total loans.
“If you are a housing finance company be a housing finance. Else be a developer finance company. Everybody drew comfort when the money was lent to HFCs. But that turned otherwise and that’s where the whole problem arose," he said. “Earlier HFC was giving 75% of their total loans to retail loans. But rules changed and it reduced to 50% of the total loans.
Kumar also said that many of the problems of the real estate sector have to be solved by the industry itself. “Who told developers to take out money for this project and invest in buying land or for your luxuries? This isn’t government’s problems. This is created by developer community. How can you expect the government to set it right. We will have to set it right," he added.
Kumar’s comments come in the wake of the crisis at Dewan Housing Finance Corp Ltd (DHFL) where forensic audit has revealed siphoning of funds from the company to a host of promoter-led entities. Separately, Ministry of Corporate Affairs (MCA) is also likely to recommend a probe by Serious Fraud Investigation Office (SFIO) into allegations of fund diversion.
DHFL, the fourth-largest Indian housing finance company based on loans outstanding as of March 2019, has been facing a liquidity crisis since September 2018. As on 6 July, the company’s total debt stood at ₹83,873 crore, of which ₹38,342 crore was owed to banks, and ₹45,061 crore to domestic bondholders. The housing finance company has faced multiple rating downgrades in recent months.
At the end of September 2018, DHFL was a standard account on the books of many lenders. However, the housing financier stopped payments to lenders since 10 October following the Bombay High Court order restraining it from paying any of its secured or unsecured creditors, including fixed deposit holders. With no repayments coming, the company is likely to be declared as a non-performing asset in the third quarter.
Speaking on the sidelines, Kumar also added that lenders will report only a part of the loan exposure to DHFL as fraud. Mint had reported on 3 November that lenders are looking to declare only a part of the loan amount that is 40% of the banks’ exposure as fraud. Lenders are currently awaiting the final forensic audit report by audit firm KPMG before declaring the account as fraud in the third quarter.
A draft forensic report by accounting firm KPMG discovered that out of funds worth around ₹27,000 crore borrowed by DHFL from banks for on-lending to homebuyers, around ₹10,050 crore was invested in mutual funds. The forensic report also found that about 25 group companies to which DHFL had lent a total of ₹14,000 crore had an average profit of about ₹1 lakh, raising suspicion that the mortgage lender might have diverted funds.