Half-a-dozen NBFCs will be in difficulty if liquidity issue isn't addressed soon: Niranjan Hiranandani

Hiranandani Group co-founder and managing director Niranjan Hiranandani, who is also the president of National Real Estate Development Council and senior vice president of trade organisation Assocham, believes that the liquidity crisis faced by the non-banking finance companies (NBFCs) will blow up if the government doesn't address it in another two months. In an interview with Ateeq Shaikh, he also talks about the current residential inventory and the emergence of rental housing.

What's the state of the economy?

We have to understand three things. First, the GDP (gross domestic product) is definitely growing, whether it is at six or seven percent, growth has taken place. There is no doubt about it. Second, which is definitely a positive, is the fact that infrastructure is definitely improving. Look at the national highways, the rate at which highway construction is happening. With GST (Goods and Services Tax), all these boundaries at the city level have gone. So the advantage is that you are now getting a seamless India. The time taken for a truck to go from North to South has come down to half. The third advantage that is happening is the fact that the cost of logistics will keep on falling in the next couple of years, which is exactly what happened in China because of rail and other factors. The railway network is also improving. One bullet train doesn't make an India, but you're going to see 10 bullet trains in the next five years after that. Also, let's take Housing for All. The target of 1.10 crore houses will not be fulfilled by 2022, but it will be fulfilled in 2024. But it won't happen in every city in India. The next are the four or five things which the PM has been talking about - Swachh Bharat, cleaning of the Ganga, toilets scheme and putting Rs 6,000 per year into the account of each farmer. What is going to be a big issue is water. Every city will have to recycle all water. Now, let's look at the negatives. The biggest is the liquidity position in the market. It is unprecedentedly bad. There is no way this country can survive without improvement in liquidity. After GST, demonetisation and RERA (Real Estate (Regulation and Development) Act, 2016), the liquidity position in the market has gone down.

RBI (Reserve Bank of India) has taken several steps to release liquidity into the banks, but due to various reasons, banks are unable to extend the required credit in the business market. The lending of credit didn't match the market growth requirement. Initially, there was liquidity flow to mutual funds and NBFCs, which eventually got squeezed in the wake of several events. Liquidity is the oil of the economic growth engine. Hence it is imperative for the government and apex bodies to pump in enough liquidity back into the market. Say if I have upgraded to a bigger car because the economy has grown, and I've got the fuel but there's no oil in the engine, what will happen to the car? It will be stationary. That is the position of the economy now. The liquidity is the oil, which is the driving force, and that is gone. So the oil in the economy is missing. It's such a serious problem that if this is not solved, the engine of India will shut down some day. The signals are already there; smaller people are finding it difficult. The small and medium-sized enterprises are not getting the money. They are getting the orders, but they don't have money to invest. They are not getting credit from banks. Payments are getting delayed; there is also the input tax credit issue.

So the liquidity of India has tightened, the oil has gone out. When demonetisation took place, the cash in the economy was Rs 15 lakh crore and Rs 15 lakh crore came back. The Reserve Bank of India is responsible to supply enough liquidity in ATMs for cash withdrawal by citizens or else there could be an issue. But liquidity responsibility (for market) is denied by RBI, which says that banks are supposed to do that and RBI is only there to rescue them. Whereas, the Ministry of Finance says liquidity is the responsibility of RBI. Whose responsibility is it? After IL&FS, NBFCs are also not giving money. The situation is that this is the biggest crisis India has ever faced. In 2008, it was not so bad. We bailed ourselves out by allowing NPAs to be rolled over. If you don't improve liquidity position now, this economy is going to get tightened up. So unless you put in the oil quickly, it will slowly get jammed, and it has (jamming up) already started.

Do you see something like DHFL (crisis) happening now as you said you saw it coming?

Everybody saw it coming. If they don't address the liquidity issue, then at least another half-a-dozen NBFCs will be in difficulty. Mutual funds are not a problem as they are getting a lot of money from the public and the stock market has moved up. But NBFCs may have a problem. If this liquidity (issue is not addressed) in 60 days, then you will see it (deepening of NBFC crisis).

How big will the impact of it be?

Around Rs 30-40,000 crore.

Do you see anything happening in these two months to address this liquidity issue?

We are hopeful that RBI in concurrence with the government and other apex bodies will quickly take corrective measures to improve liquidity in the economy for its quick revival. They will have to reduce interest rates and pass on the benefit to the end users. It is up to the RBI on how to resolve liquidity squeeze issues quickly.

You said Housing for All will be achieved by 2024. What happens to the real estate industry after that? Won't the demand shrink?

No. Just because there are excess clothes for all it doesn't mean the textile industry is gone. The industry doesn't die by creating surpluses. It means that inefficient people in that industry will fade out and efficient one will survive, which is in benefit of the industry. So there will be new builders who will cater to different segments.

Does that mean there will be fewer players in the market?

Not necessarily. Theoretically, it seems plausible but in reality, India is so big that there will be plenty of builders - more than required.

Tell us more about it.

A. They say they will infuse Rs 30,000-40,000 crore for the NBFCs. But you need Rs 2 lakh crore. My viewpoint is much stronger. Others are talking from the top. The reality is worse. The government has to take a very strong view. If they don't, then the whole machinery is going to get clogged. It already is getting clogged. Those companies, which should not otherwise fail, will fail. The second part of this is that consolidation is definitely taking place in all the businesses worldwide and is not limited to real estate. This is because our country is becoming mature. In aviation, low-cost carriers are making money but Jet Airways died. Thus, a big builder can die and smaller ones can survive and vice-versa. It all depends on the business model.

What measures should the new government take to revive realty?

Lot of things have happened. Now we have to think new. The concept of rental housing has not come fully. Look at America, where at least 50% of houses are rental. In India, that is not the thing. The government said they want Housing for All, but they have presumed that it will be on ownership basis. It's not needed. No country in the world has everything on ownership. At least 50% of housing in the future has to be on rent. So we need to create a rental housing policy quickly. The government is going to come up with that. My prediction is that in the next 10 years, at least 50% of all housing created in the future will be on rental basis.

Is affordable segment a bubble in the making?

For how long do our mobile phones last? Nothing lasts forever. Change is inevitable and those who embrace it will survive and succeed.

Are you too facing liquidity crunch?

We sold $1 billion of assets. We are looking at investments. We are starting an industrial and warehousing platform, a new database centre and three new township projects.

There are 4.5 lakh units unsold in the market.

What is wrong with that? You wanted surpluses, we have created it. And now you are crying. Today you want to buy a shirt. Do you have to book it and pay by instalment? No, because there is a surplus.

So why is the industry unhappy?

They are not used to the idea. Whatever business you do, you must be efficient in your segment. The creation of surpluses should not be an issue. In a surplus economy, if you can't make money, you would be out. I'm going to make surpluses. I'm going to make buildings ready and then sell. I'm going to rent out buildings also. We started renting out long back, but the numbers were less before. But I am increasing the numbers. Now, we have around 200-300 flats.