HDFC Chairman Deepak Parekh on Tuesday said he expects real estate prices to be slashed by 20 per cent after India braves through the coronavirus pandemic. India was already dealing with a stressed realty sector due to low demand and unoccupied units.
The markets have not bottomed out yet, said Parekh as per a report by CNBC-TV18.
The veteran banker pushed for a one-time restructuring of stressed real estate accounts and relaxation in classification of NPA norms to 180 days from 90 days to help the sector which has been severely affected due to COVID-19 related disruptions.
While addressing representatives from the real estate sector through video conferencing, Parekh said unless the stressed accounts are restructured, financial institutions will find it difficult to provide additional liquidity to the sector.
The video conference was organised by real estate developers associations- Naredco and Credai.
Today, most of the developers are in a stressful situation and many of them are NPAs or will become NPAs. So, first of all we have to convince the RBI that in the interest of the future of the industry, you have to allow us to do restructuring. Once you do restructuring, we can give you (real estate developers) additional money, Parekh said adding the recommendation has already been made to the RBI.
He said renegotiation on repayment timelines is a better solution than getting into legal tangles.
Unwinding from a legal mess will be very painful, he said.
Parekh said the RBI, for some period of time, should extend the classification of NPAs norms to 180 days from the present 90 days.
Under the RBI norms, an account is classified as a NPA if it is not serviced for 90 days.
"This is absolutely necessary otherwise all lending institutions will have massive non-performing loans and massive provisions to be made. They will start making losses and rating agencies will downgrade everyone and it will be a real disaster because businesses will collapse," Parekh said.
If one-time restructuring and relaxation in NPA norms to 180 days have been done, banks and other financial institutions will be able to offer loans to the developers for a longer period of time.
He said in the current environment, monetary policy transmission is not going to happen effectively.
Yields have risen and not fallen despite the steep repo cut as markets know that central and state governments are going to come to the market to borrow heavily. Banks have and will continue to remain risk averse, Parekh said.
In the monetary policy announced last month, the RBI reduced policy repo rate by 75 basis points to 4.40 per cent from 5.15 per cent.
He said a suggestion has also been made to the RBI that they should directly purchase corporate bonds and commercial papers of the private sector as the primary markets have dried up and no company has been able to raise money.
Parekh advised real estate developers to offload their unsold inventories at whatever price as they need liquidity at this juncture.
With PTI inputs