INTERVIEWS BY COMPANY OFFICIALS TO

ELECTRONIC AND PRINT MEDIA

Interview with Deepak S. Parekh, Chairman, HDFC

August 20, 2009

Please share your views on recent global

economic crisis.
The global economy is in a deep and
widespread recession, the likes of which
have not been since the 1930s. Starting from
a financial crisis in the western world, which
spread to the real sector, there has been a
rapid downward economic spiral which has
affected most countries. World trade has
plummeted, industrial production has
plunged in many countries and
unemployment has risen.

Do you believe India is in a better position to weather the financial crisis like witnessed
in USA, UK, etc?
While India has been better placed to navigate through the financial crisis, there is a need for
introspection and straight talk. The focus should not be short-term merely to tide over this
exceptional instability. The objective has to be set the system in order for the future-even if is
means pushing for some hard decisions now.

How commercial real sector is placed in last couple of months?

This sector has suffered immense pain Worldwide and India stands as no exception. Indian
commercial real sector was too intoxicated by excess liquidity that poured in from investors
seeking quick fortunes. Land price increased like anything yet developers continued their fast
and furious pace of land acquisition. The focus was on commercial property without
adequately considering demand absorption capacities. As funds from foreign direct
investment and equity dried up, many developers were cash –strapped and began tapping the
domestic market, thereby overleveraging themselves.

What are your views on the behavior of Developers?

Developers for a variety of reasons were adamant and may were pushed to the brink before
they relented on lowering property prices. But admittedly, developers have been resilient as
well and many have been able to mobilize funds either through the sale of land banks –
obviously at discounts, off-loading non-core assets or direct stake sales. With the market
sentiment turning positive again post elections, developers are likely to take this opportunity
to raise large amounts of funds once again and there is obvious need for some caution by all.

How would you analyze the investment scenario in last 2-3 years in real estate sector in
India?
Certain investors bought the story of invincible upward movement of the Indian Property
Prices. Over the past 2 to 3 years, investors have pumped in over US $ 25 billion into the
Indian real estate market through initial public offerings, qualified institutional placements,
AIM listings and foreign direct investment. A large part of these funds were used for buying
land at exorbitant prices. But with land values having come down, my estimate says investors
could have lost close to a third of the value of their investments. Cleary, investors in real
estate have to learn to be more discerning. The investment opportunities are there, but they
need to be cherry-picked and few understand the nuances of the Indian real estate market. Let
us hope that investors will be more realistic on valuation.

What according to you is the behavior of customers for home buying? Whether it has
changed the perception of Developers?
In recent time, home buyers are once again stirring out of the ‘wait and watch’ mode. Three
key factors are working in their favour- a price correction, a size correction and lower interest
rates. Developers have recognized that the real demand no longer lies in the premium
segment and are therefore, opting to build smaller, no-frill apartments. ‘Affordable housing’
is suddenly in vogue. But this a bit of a misnormer. Some correction in prices has happened,
developer margins have come off, but real estate prices are still high. Developers are once
again introducing one-bed room apartments, which seemed to have disappeared from the
market.  Further, with interest rate reductions, many who were earlier out-priced are now able
to come back in to the housing market.

What is your concept of ‘Affordable Housing’?

Affordable housing is not about box-sized, budget homes far-flung places where there is no
connectivity to work places and little surrounding infrastructure. Affordable housing has to
be able to cut across all income segments and has to make economic sense in terms of
proximity to work place. The agenda for affordable housing requires combined public-private
collaboration and a strong political will to enforce change.

Can you comment on ‘land policy’ with the demand & supply scenario in our country?
The inability to adjust land policy with the changes in demand and supply conditions has led
to serious shortages of urban lad at affordable prices, encroachments on public and private
lands, irrational land use and absence of spatial plans in cities.  The total urban land stock in
India is only 2.3% of the country’s total geographical area, but houses 30% of the country’s
population. At a policy level, there is a need to bring in additional urban lands on a regular
basis. The process of land acquisition and conversion of agricultural lands for urban use
needs to be simplified. Secondly, the Floor Space Index (FSI) should be increased- even if it
means imposing an impact fee on those benefiting from the higher FSI. With the increased
FSI, there needs to be a commensurate upgradation in urban infrastructure as well. Thirdly, it
is imperative to give a huge impetus to in-situ development.

What role State Housing Boards are playing and should do for better results?
The time has come for states to take a hard look at the role of their housing Board.
Considering the demands for flats offered by Maharashtra Housing Board and Delhi
Development Authority due to pricing which is within the reach of common man’s reach,
other states should also look to this while reassessing their role and performance. In recent
time, many housing boards have shifted their focus to merely selling land for profit and
sitting on cash surpluses. Such profits should be mandatorily ring faced and deployed for
affordable housing.

What are the challenges you visualize for new Government at the Centre on housing
front?
The housing agenda for the new government is a daunting task. This is because the
challenges of rural housing are vastly different from urban housing and therefore, different
sets of solutions are required.  For instance, key reforms such as permitting the mortgage of
agricultural land for residential purposes and introducing title insurance could give rural
housing the much -needed thrust.
One is hopeful that this government will be more sensitive to both, rural and urban housing
needs of the aam aadmi (the common man).It would be missed opportunity if the
Government were not able to lay out an institutional framework for a real estate regulator. 
There is a compelling need for state level real estate regulators whose role would be to
oversee and monitor the affordable housing agenda, promote real estate reforms, ensure
transparency especially by mandating that flats be sold only based on carpet area and most
importantly, act as a platform to protect buyers from real state fraud.

On infrastructure developments, what are your suggestions?

First and foremost, strong execution is critical missing link to our infrastructure sector.
Secondly, we need to place greater emphasis on integrated policy planning for related
infrastructure sectors. Finally, new developments in nuclear field, water scarcity issues, urban
transport and improvement in city level governance are some of the important areas need
urgent attention.

What is your advice to the average Indian for investment in property market?
Be careful in choosing the developers, ask for detailed data/ papers for verification, do not
pay all money at a time, ask for guarantee and legal remedy in case of default by your
developer. Best Wishes.
Here is an exclusive interview Aditya Puri’s on CNBC-TV18.
Aug 03, 2009

Q: What is your perspective on the Credit Policy?

A: I think the Credit Policy is very clear. At this point of time the interest rates are stable.
There are pressures on inflation which are being looked into. We have to see how the
economy grows and you could see some rise in interest rates at the end of the year, subject to
what happens to inflation. So I would say they are stable, should continue to be stable and we
need to watch inflation which is what the credit policy said.

Q: What do you think about corporate loans, do you think banks will re-price corporate
loans now?
A: Not really, at this point of time the banking system is running a surplus of Rs 140,000
crore which they are placing out at 3% in the reverse repo, there is enough liquidity. We need
to understand the Credit Policy in a proper perspective. All that the Reserve Bank has said is
that these are the issues we need to look at, inflation is a concern but not an immediate
concern and they would watch it as the base effect disappears and depending upon the rate of
growth. So I don’t think they would be re-pricing immediately any loans.

Q: What about Q1, we have seen banks bringing down their retail loan book yet
benefiting from the fee income that they have earned––what are your views on that?
A: As far as HDFC Bank is concerned, we did not bring down our retail book. Going forward
I think the demand is picking-up, as you see what is happening to the sales of autos and other
consumer related, as well as housing. So I do see good demand from housing, autos, personal
loans, two wheelers and that is as the economy is turning around. These days you call it green
shoots but there is a turning around and the worst is behind us.

Q: Lot of loans were restructured, form an industry point of view, was it a good thing to
do or was it just banks saving their balance sheet? Could it probably mean a lot of bad
debt?
A: I think media always likes to look at the darker side. So let me give you a balanced view––
when an economy slows down, and if you expect an economy growing at 8.5–9%, when it
slows down it will affect the cash flow of the companies. A restructuring is a sensible
alternative. To equate restructuring with bad debts is wrong.
Restructuring recognizes the changed economic environment and is the right way for a bank
and the customer to work on a mutually beneficial basis.