Mumbai: Ensuring frictionless transition within the group will be his top-most priority, Housing Development Finance Corp. (HDFC) Ltd chairman Deepak Parekh said in his annual letter to shareholders.
Succession planning requires 18-24 months of preparation, Parekh said, hinting at the impending retirement of HDFC Bank’s chief executive officer (CEO) Aditya Puri. The boards of respective companies will look at both internal and external candidates to fill positions, he said.
“Personally, the task of ensuring frictionless transition is and will be on the top of my mind. That said, it is not as if there will be an announcement right away,” said Parekh. “As passionate and energetic as some of our leaders within HDFC group are about their jobs, the reality is that individuals do get on in age,” he said.
This is the first time that Parekh, who turns 74 this year, has publicly spelt out his views on succession planning at the housing finance major and its group companies.
In an analyst meet in May, Puri had, however, given a roadmap for transition at the bank, ahead of his retirement in October 2020. Puri has been managing director of the country’s largest private lender over the last two decades since 1994, the longest serving chief of an Indian bank.
In his letter, Parekh also said that Keki Mistry (63) will continue as the vice-chairman and CEO of HDFC for three years, subject to shareholders’ approval.
On the housing finance business, Parekh urged the regulators to remove the regulatory arbitrage around funding land acquisition. He said banks and housing finance companies should be allowed to fund developers to buy land for affordable housing projects.
Currently, banks and housing finance companies are not allowed to fund land transitions. However, that’s not the case with non-banking financial companies (NBFCs) and private equity players, who are permitted to do so.
Parekh said that the regulatory arbitrage allows NBFCs and private equity (PE) players to levy prohibitively high interest rates on developers borrowing to acquire land.
“If housing finance companies of a certain threshold size are permitted to fund developers to acquire land for affordable housing, then the current high interest rates are likely to get rationalized. This in turn will help reduce the cost for a homebuyer,” he said.
Parekh also called on the regulator to stop “lazy housing finance”, which encourages lenders from poaching customers of other lenders. He suggested that lenders be allowed to charge prepayment penalty on home loans of those customers who transfer their loans to other lenders in less than two years.
“The growing practice of housing finance players picking loans off each other’s balance sheet needs to be carefully monitored. With regulators prohibiting prepayment charges on most home loans, no one gains in this game except the agent who keeps collecting commissions,” he said.
In April 2012, the Reserve Bank of India had asked banks to stop levying prepayment penalty on floating rate home loans to bring uniformity across the banking system. This had resulted in borrowers switching their loans to lenders offering lower rates, a practice that slowly eroded the marketshare of many lenders, including HDFC.