Money & Banking
Allow banks and HFCs to fund land transactions, says Deepak Parekh
PE players, NBFCs and informal private lenders provide funds to developers at initial states. The initial high cost only keeps getting multiplied and is the key reason why housing is becoming more unaffordable for many, says the HDFC Chairman
The regulators need to allow banks and housing finance companies (HFCs) to fund land transactions, which will bring residential prices down, increase the stock of affordable housing and fulfil the aspirations of more Indians becoming homeowners, says HDFC chairman Deepak Parekh. 
“The regulators should, within limits, permit banks and HFCs to fund land transactions -- or at least land transactions that are acquired specifically for residential purposes. This is a simple, doable solution. It will bring residential prices down, increase the stock of affordable housing and fulfil the aspirations of more Indians becoming homeowners. So the key question remains -- will the regulators oblige?” Mr Parekh told shareholders during HDFC’s annual general meeting.
Here are excerpts from Mr Parekh's speech at the AGM...
‘Housing for All’ by 2022 features prominently in the Narendra Modi government. Some may dismiss this as rhetoric with little action while others who truly understand that housing is a unique asset will work relentlessly towards this goal. Needless to add, we at HDFC belong to the latter, though we recognised this 38 years ago. We have remained steadfast in our goal of increasing home ownership in India. Five million housing units have been cumulatively financed by HDFC – a number that gives us immense pride and satisfaction. Yet we recognise our efforts need to intensify manifold if a majority of our citizens are ever to get humane, decent and affordable housing.

Building India

The path to any grand vision is rarely smooth, but some roadblocks can be overcome. One of my greatest concerns today is who will physically build in India on the scale required? Urbanisation is an irreversible trend. By 2030, about 600 million Indians will be living in urban India. Rejuvenation of existing urban areas and creation of new cities will require smart real estate and urban infrastructure related solutions. It is the construction sector that has to deliver most of this.
The construction sector contributes around 8% to India’s GDP and has a two-fold multiplier effect on other industries with backward and forward linkages. Almost 10% of India’s workforce which translates into 45 million jobs is directly or indirectly created by the construction industry. By 2022, the largest incremental growth in jobs is expected to come from this sector -- an estimated 77 million new jobs. India needs growth, physical infrastructure and jobs – all of which can be delivered by the construction sector, provided a conducive policy framework supports it.
Many construction companies are hamstrung with over leveraged balance sheets, though this is only one aspect of the problem. For the construction sector to revive, there is an urgent need to reduce delays in claims settlements. Ironically, a majority of these claims are with government bodies. There is also a need for a credible and efficient arbitration and dispute resolution mechanism to safeguard against lengthy litigation processes. Further, standardisation of contracts (which would also facilitate standardisation of taxation) and ensuring strict adherence to contractual terms will go a long way in boosting the sector.

Where there is a will, there is affordable housing

The perennial question is how can housing be made more affordable? There currently is a disconnect in the housing market. On one hand there is an acute shortage of housing, but on the other, in some of the larger cities, there is a growing stock of unsold inventory. The answer lies in the pricing points not being right. The real demand is in the affordable housing segment, not high-end luxury housing. Developers are not relenting on the pricing of existing stock, while the cost of launching new projects is only rising.
Solutions to these problems have been elucidated several times. Faster approval processes will reduce overall costs and on-line approvals will bring in the much needed transparency. Approvals take between 18 to 24 months. Needless to add, there are at least 50 approvals required across different authorities. If there is consensus that fewer approvals and interventions reduces overall costs, compresses timelines and ultimately benefits the homebuyer, then fast-tracking of approvals is imperative. Equal onus must lie with developers as well to ensure strict adherence to ethical building codes and standards. Projects often get delayed as certain developers try to deviate from standard building norms by paying to flout rules. Such malpractices are hazardous for all. A regime that shuns ‘speed money’ and focuses only on ‘speed’ would go a long way in improving affordability in the housing sector.
The other critical issue pertains to the high cost that developers incur while borrowing to fund the purchase of land. This initial high cost keeps getting multiplied and is the key reason why housing becomes more unaffordable for many. The root of the problem is that banks and housing finance companies (HFCs) have been prohibited from funding land transactions by the regulators. So at the initial stage, it is the private equity players, the non-banking finance companies and informal private lenders that fund developers to acquire land. These are at prohibitive costs, ranging between 18 to 24% per annum. It is only at the construction stage and after requisite approvals are obtained that banks and HFCs are allowed to fund projects. By this time, developers are already saddled with high cost debt to service. 
In 2006, the regulators prohibited banks and HFCs from funding land transactions. Such actions may be justifiable when there are fears of asset price bubbles. Over two years ago, the regulators reduced risk weights on exposures to commercial real estate - residential housing. This signalled that there were no fears of any speculative bubble. Then logically, the regulators now need to relax this near decade old restriction. The regulators should, within limits, permit banks and HFCs to fund land transactions -- or at least land transactions that are acquired specifically for residential purposes. 
This is a simple, doable solution. It will bring residential prices down, increase the stock of affordable housing and fulfil the aspirations of more Indians becoming homeowners. So the key question remains -- will the regulators oblige?
Meanwhile, HDFC finished another year of steady growth. As from the day we started business, we remain committed in helping build a property owning democracy for it guarantees a peaceful and prosperous society. We are excited about the prospects of India’s future and hope the vision of 100 smart cities and a rejuvenated urban India turn into reality. 
The challenges are immense, yet I remain optimistic to reiterate that India has never had a better chance than today to make the ‘big change’ for generations to come.


Nifty, Sensex, Bank Nifty bullish: Thursday Closing Report
Only a sudden reversal below 8,330 will be bearish for Nifty
We had mentioned in Wednesday’s closing report, India’s benchmark NSE’s CNX Nifty may move sideways now. A firm move above 8,450 would be needed to head higher and a decline below 8,300 could be bearish, we had said. As expected, the Indian indices were range-bound and recorded minor gains.
Making a strong pitch for investments, Finance Minister Arun Jaitley has asked long-term US investors to start investing without any delay as India's growth story is on a firm footing and all outstanding issues are under the government's active consideration. In his meeting with a group of US investors, Jaitley, who concluded his nine-day US tour Wednesday, alluded to the extensive reforms that have been launched by the Indian government during the last one year. Addressing long-term investors at a roundtable organised by CII and Kotak in San Francisco, Jaitley said the economic fundamentals are very strong, making India one of the most attractive investment destinations. This is the same pitch, former finance minister P Chidambaram used to make.
Shares of Information technology (IT) companies were under pressure, declining by up to 9% in an otherwise firm market. KPIT Technologies closed at Rs90.15, down 9.08% on BSE and Mindtree closed at Rs1,294.35, down 5.05%. KPIT Technologies shares also saw a spurt in volume with 40 lakh shares traded on the BSE as compared to a 2-week average of 1.26 lakh. Ravi Pandit, chairman and group CEO of KPIT Technologies, denied rumours of promoters selling stake in the company. He also clarified that the company has not issued a profit warning. The share price of KPIT touched its 52-week low of Rs85.05 on BSE.
State Bank of India (SBI) said it will install 10 lakh payment card swipe machines (point of sales, or PoS, terminals) across the country. It will double the number of places where card payment is accepted. The bank is also launching a huge campaign to promote cash withdrawal of up to Rs1,000 at these PoS terminals, which will reduce pressure on automated teller machines (ATMs). SBI shares closed at Rs265, up 1.01% on NSE.
Axis Bank has launched a new debit card Secure+ which will protect the customer from frauds of up to Rs75,000, even in cases where the fraudster has obtained the PIN number. The secure card also comes with a service that enables customers to store details of all their cards (including other banks) and block all of them with a single call in case of the wallet being lost. Axis Bank shares closed at Rs570, down 0.26% on NSE.
The top gainers and losers in main categories in the stock market are given in the following table:
The closing figures of other indices in India and abroad is given in the table below:
Among European indices, FTSE 100 was trading at 6,863.92, up 0.28% and DAX was at 11,555.78, up 0.74%. Athex Composite Share Price Index was at 786.50, up 0.72%. 
The US index futures were in the green.


Will the Maharashtra government frame rules to avoid selecting shady information commissioners?
Information commissioners DB Deshpande and MB Shah are under a cloud now. Will the Maharashtra government now frame proper rules for selection of ICs, as ordered by the state’s Administrative Tribunal?
That DB Deshpande had to be asked to resign by Chief Minister Devendra Fadnavis is a shame not only to this information commissioner (IC) but also to the state government, which turned a Nelson’s Eye to Deshpande’s (and MB Shah’s) credibility as officers, a mandatory clause for selection of an information commissioner.
It is only when the Anti-Corruption Bureau (ACB) filed a first information report (FIR) against former PWD minister Chhagan Bhujbal for financial irregularities in construction of Delhi’s Maharashtra Sadan that Deshpande’s name also emerged. ACB raids at Deshpande’s house proved he had amassed disproportionate wealth manifested through land, real estate property, gold, shares, fixed deposits and so on. Raids conducted in former IC MB Shah’s residence also proved that he had illegal assets.
This had triggered off anger amongst Right to Information (RTI) activists who have time and again questioned the opaqueness of selection of Central Information Commissioners (CICs) and ICs under the Act. Pune-based RTI activist Vijay Kumbhar was the first one to send a letter to the Maharashtra Governor, demanding Deshpande’s resignation. On 19th June, CM Fadnavis approved suspension of Deshpande. On 24th June, Deshpande submitted his resignation.
The point is that the selection of an information commissioner is sacrosanct and the RTI Act has stringent rules for the same. Besides, it is compulsory for the selection committee to thoroughly scrutinize credentials of the candidate, which include clear report from agencies like Intelligence Bureau (IB) and Vigilance. Not only, did the Maharashtra government not follow this crucial norm or ignored it deliberately, it has also not responded to the Maharashtra Administrative Tribunal (MAT). The MAT while passing strictures on process of appointing information commissioners, had asked the state government to frame rules for selection of State Chief Information Commissioner SCICs and CIC, the deadline for which is end June.
In fact, the appointments of Deshpande and Shah are murky and reveal how little the state government cares for transparency. MAT’s hard-hitting order was a sequel to the complaint filed by Ahmednagar resident John Kharat who had also applied for post of information commissioner. He had challenged the selection of the SCIC as well as Information Commissioners PW Patil (Nagpur), DB Deshpande (Aurangabad) and MS Shah (Nashik) in 2010. 
The MAT order dated 16 April 2015 had directed the chief secretary of Maharashtra to frame Rules for the selection of the post of State Chief Information Commissioner and Information Commissioners within eight weeks of the order, the deadline of which was 15th June. Besides, it has made some strong observations of the prejudiced and casual manner in which the High Powered Committee that is responsible for selecting information commissioners, functions. 
Following are the Tribunal’s observations:
We are of the view that while scouting for the said posts, the High Powered Committee will have to make sure that the area of resources is sufficiently large so as to attract and ensure the appointment of the best talent for these important posts
We find that 72 applicants were considered or so the respondents claim they were. PW Patil was a retired Joint Registrar of Cooperative Societies. MS Shah was a retired secretary in PWD having retired on 30 April, 2009. DB Deshpande was also a senior most officer in PWD. He has also retired… However, we must note that the kind of wider source from the fields of law, science and technology etc. were apparently not taken into account with the kind of seriousness that they should have been
Citing the recommendations of the Supreme Court in the Namit Sharma case, the Tribunal observed, “…in so far as the present facts are concerned, there is no material to show as to what the state of affairs was with regard to the 68 candidates other than the 4 selected…it seems on the basis of record such as it is that the High Powered Committee did not frame any rules as such for the purposes of making appointments in the said posts…
Following is the order by MAT
There is an urgent need to make rules consistent with the provisions of Right To Information Act, 2005 especially Section 15 thereof for selections to the posts of Chief Information Commissioner and Information Commissioners. It will be desirable to have the rules in place much before the next selection is taken up for consideration by the High Powered Committee under the Information act. The directions of the Hon’ble Supreme Court in Namit Sharma’s case (reviews judgment) be carefully perused and implemented.
It will be within the discretion of the Committee to fix the eligibility criteria for the said posts. But there again, the provisions of the Information Act may be strictly followed and it be ensured that the legislative mandate to have eminent persons from all the various disciplines like Law, Science and Technology etc should be given full scope to complete
The criteria should be duly publicised well in advance before the selection process begins. Sufficiency and mode of publicity of the said criteria will be within the discretion of the Committee
The selection process must be transparent and definitive without any scope for apprehension of partiality, favouritism and such other vices. There must be a definitive time frame from the commencement of the said process till its conclusion without submission of the recommendations to His Excellency, the Governor
The Chief Secretary, Government of Maharashtra is requested to bring this judgment of the notice of the Hon’ble Chairman and Hon’ble members of the Committee for information and action. …the Chief Secretary of the Government of Maharashtra may report compliance herewith within eight weeks from today (16 April 2015).

Rules for removal of information commissioner

Notwithstanding anything contained in sub-section (1), the President may by order remove from office the Chief Information Commissioner or any Information Commissioner if the Chief Information Commissioner or a Information Commissioner, as the case may be,– is adjudged an insolvent; or has been convicted of an offence which, in the opinion of the President, involves moral turpitude; or engages during his term of office in any paid employment outside the duties of his office; or is, in the opinion of the President, unfit to continue in office by reason of infirmity of mind or body; or has acquired such financial or other interest as is likely to affect prejudicially his functions as the Chief Information Commissioner or a Information Commissioner.
If the Chief Information Commissioner or a Information Commissioner in any way, concerned or interested in any contract or agreement made by or on behalf of the Government of India or participates in any way in the profit thereof or in any benefit or emolument arising there from otherwise than as a member and in common with the other members of an incorporated company, he shall, for the purposes of sub-section (1), be deemed to be guilty of misbehavior.
(Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)




2 years ago

Its time to clean the govt offices of such officers/employees.Its time strong action is taken

Now That ACB raids have revealed disproportionate assets to his know source of income what about IT and other departments,will they too question them,

We talk about black money stashed abroad by individuals, but what about the govt employees here who have amassed huge wealth here itself.

Shirish Sadanand Shanbhag

2 years ago

By appointing corrupt officers as a State Information Commissioner, Maharasahtra State will lose its value.

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