Malls urge RBI action on loans to save industry from collapse

Indian malls have urged the Reserve Bank of India's intervention to defer loan repayment demands from banks with many of the establishments pushed to the brink due to the impact of covid-induced lockdown.

Some banks have asked for loan repayments though the RBI announced a three-month loan moratorium. The Shopping Centre Association of India (SCAI), which represents malls including those in smaller towns, have asked the central bank to extend the moratorium on loan repayment to nine months.

"Compounding already severe liquidity blow, the Banks are now writing to shopping centre/ mall owners directing them to deposit rental payments even for the month of April in Escrow accounts against Lease Rental Discounting facility availed by the industry," said Amitabh Taneja, president of SCAI. It is pertinent to note that here that the shopping centres industry has an overall exposure in excess of Rs70,000 crore under the Lease Rental Discounting facility."

Typically, banks advance loans under the Lease Rental Discounting (LRD) scheme wherein shopping centres depend on rentals from retail stores within their establishments to repay the financial institutions every month. With business at a standstill, retailers have started defaulting on rentals to the mall developers, which in turn is affecting the whole cycle of repayment to banks, an industry executive said, on condition of anonymity.

Over and above, they are struggling to pay fixed costs such as eletricity charges and wages to employees . Malls employ around 12 million people in the country.

In the absence of a financial relief package, the industry is likely to be wiped out with more than 500 shopping centers going bankrupt that would result in non performing assets of Rs25,000 crores, the SCAI said.

"The shopping centre industry is in deep financial distress with Banks invoking contractual obligations under the lease rental discounting facility and directing companies to fulfil its obligation, raise invoices for the month of April 2020 and ask tenants, largely retailers, to make rental payments in the Escrow account of the Bank," Taneja said.

"Unable to deposit Lease Rentals, SCAI believes that this will result in significant amount of defaults leading to classification as NPAs in the very near future

itself. The situation calls for an immediate attention and intervention from the Reserve Bank of India," Taneja added.

SCAI has also urged the RBI to reduce the interest on loan repayments to 5% from 9% because of the covid-19.

"The Shopping Centres Industry is heading into the financial ICU (intensive care unit) with urgent need of oxygen to survive. You are already aware that the burden

of the collapse of the shopping centres industry will not only be restricted to the financial institutions; but will also have a direct bearing on other sectors of the

industry including textiles, fashion, entertainment, electronics, consumer goods," he said.

There are more than 1,000 shopping centres across the country including smaller, out of which around 550 are single owned by standalone developers. Shopping centres are likely to be among the last to be reopened even after the lockdown is lifted among various industry sectors because of the danger of crowding that increases risks of covid infection.

"The plight of the shopping centres industry is such that we are bearing the brunt from all sides. On one end the lockdown has completely choked our revenues and reserves are drying up whereas on the other hand, the burden of making timely payments to avoid penal interest and other legal tangles hangs on our heads, said Rajendra Kalkar, director and president west at Phoenix Malls, one of the country's largest mall developer.

"If financial support and reliefs are not provided soon, the entire retail ecosystem will collapse. Given the large LRD exposure of the industry, the commitments of repayments are huge. It’s just a matter of time when cracks will be seen in the system," he said, adding that a revival of the economy has to be consumption driven.