Housing Finance Companies (HFCs) should focus more on providing retail loans instead of financing developers, State Bank of India (SBI) Chairman Rajnish Kumar said, calling out for a reversal in an earlier relaxation.
"If you are a housing finance company, be a housing finance company. 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. Earlier, HFC was giving 75 percent of their total loans to retail loans. But rules changed and it reduced to 50 percent of the total loans," Kumar said.
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He added that there was space for new HFCs to enter the market, but on two conditions. "They should be 100 percent housing finance companies and they should not take deposits," he said.
Also, it would be preferable if the housing finance sector fell within the ambit of one regulator, he said.
"I believe in one regulator. When there is multiplicity of regulation, it falls between two spools," he said.
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While the Reserve Bank of India acquired the supervising role for HFCs this year, their regulation still lies with the National Housing Bank (NHB).
As per NHB norms, an HFC is an entity that primarily transacts or has as one of its principal objects of transacting the business of providing finance for housing, whether directly or indirectly.
Kumar also pointed out that the issues arising out of alleged misuse of funds by builders need to be dealt 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 the government’s problems. This is created by the developer community. How can you expect the government to set it right. We will have to set it right," Kumar said.
He was speaking at the Indian Mortgage Leadership Conclave held on November 6.
Earlier this year, the NHB raised concerns about the HFCs' rising exposure to developers and asked them to desist from offering loans for subvention schemes offered by builders or developers.
"Several complaints continue to be received by the National Housing Bank in relation to the aforementioned housing loan products. Further, instances of fraud having been allegedly committed by certain builders using subvention schemes have also been brought to the notice of the NHB," the circular said.
NHB added that loan disbursal should be closely linked to the stages of project construction.
Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC) said that not all subvention schemes were being misused.
"Subvention schemes did incentivise home buyers to purchase under construction homes. Unfortunately, misuse by a few entities has hurt the entire sector," Parekh said.
He added that there are developers that genuinely need last mile funding but are being denied their rightful funding in a risk averse environment.
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