Curious developments for HFCs.
During the meet, Assocham suggested that systemically-important NBFCs must be allowed to accept public deposits, and to revive HFC lending, especially towards individual home loans, they should be permitted access to National Housing Bank’s refinance facility.
If this happens, then it’s a big positive for all HFCs. HFCs will essentially become banks, except their major lending activity being to the housing sector. I doubt this will happen, though. If it still does, I think perhaps a select few large HFCs may get the go ahead first (The likes of HDFC, DHFL and IBHF, if I had to guess).
Towards this, HFCs should be given time till December 2020 to comply with the requirement that individual home loans should be more than 50 per cent of their assets.
This looks like a negative, but it is in line with AssoCham’s earlier suggestions. If a firm accepts deposits from the public, then the RBI won’t encourage single-point failures. They’ll have to ask HFCs to diversify their lending practices regardless of their disposition or values.
It has also demanded that the Reserve Bank of India provide a liquidity window for NBFCs/ HFCs against sale of secured loans by taking appropriate margin on these secured loans, maybe at a higher rate, to help restore confidence in the sector.
This has been suggested earlier by others. I personally don’t think this is required. The RBI need not repair what’s not broken. Debt Market Yields were scary a few months back, but they have since climbed back down.
Overall, for investors in DHFL, this is a crucial turning point. The company’s primary value proposition was their concentration of Retail loans, so these changes may mean a complete overhaul of the currently operative business model (As Mr. Wadhwan had hinted at earlier). But let’s not get ahead of ourselves. These are just suggestions for now. We’ll wait for news to start drawing conclusions.