HDFC plans 100 bps hike in home loan rates this week

MUMBAI: HDFC is likely to raise home loan rates by 50-100 basis points this week, according to HDFC chairman Deepak Parekh. Speaking on the sidelines of a CII seminar on corporate governance, Mr Parekh said that HDFC was still studying the impact of the rising borrowing costs and would take a final call on rates this week.

He said that with real estate prices touching a peak and the interest rates rising, investors would move out of the market. However, demand from genuine home borrowers would continue to be there.

On RBI’s higher provisioning requirements for real estate loans for banks, Mr Parekh said that these measures were taken to ensure stability in the market prompted by genuine regulatory concerns of higher asset prices. He later said that there was some softening of prices in select pockets such as Whitefield near Bangalore, Noida and Ghaziabad.

Earlier making a theme address at a seminar on `relationship between good governance and good performance’, Mr Parekh noted that barely 50% of the listed companies comply with clause 49 of the listing agreement relating to corporate governance, though it’s over a year since this has been made mandatory.

And only 5% of the listed companies in India have a depositors and officers policy as against 90% in the US. Mr Parekh said that companies, which have not complied with this clause, need to be fined by regulators. Though fine amount is small, it will attach a stigma to the company, he said.

Speaking on other issues relating to corporate governance, Mr Parekh said that companies have to ensure that audit committees should not turn into mini-boards.

As for future reforms, Mr Parekh noted that whistleblowers policy should be made mandatory rather than the current practice of it being voluntary. He also added that there is a limited scope for legislation in corporate governance and the initiatives should come voluntarily.

The focus should be on increasing share holders value. He said that succession plans should be looked at continuously as CEOs are not permanent fixture. Internationally, companies spend a lot of time on this, which is not the case in India.

He noted that the CEO salary was at times `eyebrows raising’ and that the variable component should be performance linked and that the fixed element should be limited in their salaries. Greater emphasis should be on adding shareholders value.

As for real estate business in India, it is not very transparent, he said. Most real estate companies in both emerging markets and in domestic markets often are quoted below the issue price.
High PEs of real estate companies are on account of high-land valuations they have and not because of governance practices. Regulators are often concerned about asset bubble. Real estate prices go up and down, and one has to learn to live with them.