Parekh slams NHB for spiking teaser loan provisioning

Private mortgage lender HDFC Chairman Deepak Parekh today hit out at the National Housing Bank's (NHB) decision to raise provisioning norms for teaser loans, saying it is steep and there is no "logic or rationale" to the move.

Also, the realty housing finance market regulator's move to increase provisioning on teaser loans to 2 per cent from the earlier 0.40 per cent should be applicable to fresh loans only, Parekh told reporters after a jury meet of ICAI Awards here.

"It should be prospective and not retrospective," he said.

Taking a cue from the Reserve Bank, NHB had last week asked all home finance companies to increase provisioning for special housing loans given at lower interest rates (popularly called as teaser rates) on their entire portfolio.

"I think it is a very steep increase and one must look at the performance of some of these loans," Parekh said, adding in its 33 years of  existence, HDFC's NPA (non-performing assets) levels have not risen above 1 per cent.

Hence, "it does not justify" to raise the provisioning levels and there is no "logic or rationale" in increasing the provisioning levels just because they are given under teaser rates.

Fearing an asset bubble, RBI had in its November credit policy review, asked banks to make higher provisioning on teaser rate loans in a similar manner.

Provisioning is the amount of money lenders need to set aside that will be used as a measure to manage stressed assets and a hike in the provisioning norms dents the lender's profits.

Teaser rate loans were introduced in April 2008 following the credit crunch in the wake of the global financial crisis that hit the world economy in late 2007.

Had companies known about the reservations of the regulators, they would have withdrawn the teaser rates much earlier, Parekh said.

While all major lenders including HDFC discontinued their teaser rate scheme last month, State of India (SBI) is the only lender which has decided to continue with special rates till March.

Meanwhile, when asked about correction in real estate prices, Parekh said sales of apartments in big cities is slowing down and developers have started to offer discounts.