Mortgage Crisis

July 6, 2006 (LBO) – A top Sri Lankan housing bank has asked the government to exempt housing mortgage lenders from upcoming law aimed at helping smaller defaulters, as it will curtail the growth of the entire housing loan market. HDFC Bank, a publicly listed bank originally set up by the government, is facing the threat of a credit downgrade, if the proposed legislation – which will lift the power of banks to quickly foreclose on pledged assets on loans below 5 million rupees becomes effective.

Almost all the loans of the HDFC Bank, the State Mortgage and Investment Bank are below five million rupees.

“We asked the government through the ministry of housing to reconsider the decision,” HDFC Bank’s CEO C A Sarathchandra said.

The legislation is due to be presented in parliament later this week.

HDFC disburses about 15,000 loans each year. Officials say the move to lift parate execution where banks can quickly auction pledged assets, will delay collections and reduce the amount of new loans.

Sarathchandra says a credit downgrade will also increase the bank’s borrowing costs, resulting in higher interest rates for all borrowers.

Their inability to speed up collections and the higher risks wi