2 min read.Updated: 06 Feb 2020, 07:02 PM ISTBidya Sapam
RBI allows banks to extend commencement of commercial operations of project loans by another year
Developers say the Policy announcement by the RBI will boost the credit flow to the real estate sector
After a lackluster Union budget, the ailing real estate market got a boost from the Reserve Bank of India (RBI) with its decision to allow banks to extend commencement of commercial operations of project loans by another year. Developers expect the move by the apex body would bring relief to the cash starved developers and ease the liquidity crunch to an extent.
The RBI’s move is likely to help developers focus on completing projects and ease banks' worry about projects turning into non-performing assets.
“This is a big move and will bring the much-needed relief to the cash-starved real estate sector - and to both developers and the housing finance companies (HFCs) from the liquidity perspective. It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to completing several stuck projects," said Anuj Puri, chairman, Anarock Property Consultants Ltd.
As part of its sixth bi-monthly monetary policy statement of fiscal 2019-20, the central bank on Thursday said it will permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond promoters’ control, by another year.
“The Policy announcement by RBI is thoughtful and encouraging as it will further boost the credit flow to the stressed residential realty sector," said Jaxay Shah, chairman, Confederation of Real Estate Developers Association of India (National). According to him, RBI’s decision would be instrumental in bringing much needed relief to developers. “This is also significant in downgrading the assets by a year," Shah said.
The Indian real estate market has seen a prolong slump for the last four years with several developers struggling with piling debt and slow pace in housing demand. Last year, the government had also announced its plan to set up Rs25,000 crore Alternate Investment Fund (AIF) to fund last mile deliveries of stalled residential projects. As per Anarock, around $25 billion worth of projects are currently under insolvency proceedings. This would span across 218 projects with 1.74 lakh units in top seven cities in the country.
“The RBI had no other way than to extend some relief to the realty sector by allowing not to downgrade realty loans for genuine delays and granting additional time for repayment. While it will give a window to manage scarce finances for a certain period, it will not completely ease the sector's financial stress," said Rajan Bandelkar, president, National Real Estate Development Council (West).
According to Sanjay Dutt, managing director and chief executive officer (CEO), Tata Realty and Infrastructure Ltd, the RBI’s move will provide short term relief to the real estate sector.
“We look forward to government’s continued support to the RE sector and also address some of the long standing requirements of the sector like granting of the industry status and single-window clearance mechanism, one time rollover would make significant difference," Dutt said.
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