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Realty sector gets NPA breather

Lenders told to postpone downgrade of builder loans by one year for projects facing genuine delays.

ET Bureau|
Last Updated: Feb 07, 2020, 08.54 AM IST
MUMBAI: The Reserve Bank of India (RBI) has allowed all banks and lenders to defer the classification of troubled builder loans as bad for one year, giving the beleaguered industry more time to restructure them.

RBI governor Shaktikanta Das announced on Thursday that loans for projects delayed for reasons beyond the control of promoters will be treated as standard loans. Detailed guidelines from the central bank on this issue are expected shortly. The measure is expected to boost the real estate sector struggling with high inventory, poor prices and incomplete projects. It is also expected to help banks and other lenders to work with the management and promoters to restructure loans.

The BSE Realty Index surged more than 1.6% on the RBI announcement while the Bank Nifty slipped 0.92% and the Nifty Financial Services fell 0.9%.


Easing Liquidity
In November last year, the government announced plans to set up Rs 25,000-crore alternative investment fund (AIF) to provide funds to developers whose projects are more than 60% complete but are stuck for want of money. “This is a big move and will bring the much-needed relief to the cash-starved real estate sector — and to both developers and housing finance companies from the liquidity perspective,” said Anuj Puri, chairman, Anarock Property Consultants. “It will help ease the time for maintaining and managing cash flows for cash-strapped developers and help them to complete several stuck projects.”

Bank credit growth is set to slow to a 58-year low of around 6.5% in the year through March as lenders face destruction of demand and negative corporate loan growth.

At the end of December, credit growth was at 7.2% and loans to commercial real estate grew nearly 15%.

“While this is positive for banks and will encourage them to lend more to these sectors, we believe the real issue is risk-aversion as banks are unwilling to lend and sitting on Rs 3.4 lakh crore of excess liquidity,” said Suresh Ganapathy, head of financial services research at Macquarie. “The real challenge is where projects are operational and residential sales aren’t happening and developers are sitting on huge amounts of inventory. There is no relaxation there.”
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