HDFC CEO says Indian banks' bad loan problem will correct itself

India's non-performing asset (NPA) problem has been overblown, said Keki Mistry, chief executive and vice chairman of HDFC, the Indian housing finance company.

A recent report by the India Ratings and Research agency showed that one third of the largest 500 non-financial companies in the country were unable to make interest payments on their debt in 2015.

Although the Modi Government is working on reforms to the banking system to address the pile of bad debt held by banks, which has been blamed for hampering India's economic growth, Mistry said it was unrealistic to expect a quick fix.

"It's not that this is something which happened in the last two years, it's a legacy which has happened over several years," he told CNBC's "Squawkbox." "It's not going to get resolved in the next two years or three years."

However, Mistry expressed confidence that the NPA problem would ultimately correct itself.

"A lot of these NPAs [will] automatically get resolved once the investment cycle starts picking up," he said.

On the issue of real estate investment trusts (REITs), Mistry said that it was "only a matter of time" before the investment vehicles were introduced in India. India's demographics and an undersupply of urban housing have resulted in the potential for competitive REITs in the country, he added.

"The government has been providing some incentives in creation of REITs," the executive said. "There were some technical issues surrounding REITs but … most of these have gotten resolved."

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CORRECTION:

This story has been updated to reflect that HDFC is a housing finance company.