Banks should be allowed to lend to stressed real estate projects without classifying the loans as non-performing assets, Axis Bank managing director and chief executive officer Amitabh Chaudhry said on Wednesday, adding that the government should consider a mechanism to ensure the completion of stressed real estate projects.
"We need to have a mechanism where lenders look to restructure those assets, lend more with stronger governance and look to complete these projects. Such a scheme from the government is awaited. The basic idea is that lenders if they continue lending they should have first charge over the asset itself and they are not required to classify it as NPA," Chaudhry said while speaking at the India Mortgage Leadership Conclave.
Chaudhry also said there is need to improve the resolution infrastructure to deal with stressed real estate projects. Currently, lenders are unwilling to lend to projects which are held up in National Company Law Tribunal (NCLT) for fear of bad loan classification.
"We need resolution infrastructure for real estate projects to improve dramatically. We are in the midst of a crisis where economic growth isn't as high as we would like it to be. Developers who are unable to continue with construction of their projects are becoming defaulters to banks and lenders. We will need the infrastructure to deal with such cases," he added.
Finance minister Nirmala Sitharaman had on Tuesday said the government was working with the Reserve Bank of India (RBI) to address issues faced by the real estate sector. The focus on real estate is part of the government’s broader plan to kick-start economic growth, which has slowed to a six-year low of 5% in the quarter ended 30 June.
On the transmission of policy rates, while banks have moved to linking floating rate loans to external benchmark rates, Chaudhry warned that customers could face payment shocks in an increasing interest rate cycle.
"We welcome RBI’s move to link floating rate loans to external benchmark for customers. While the move shall result in customers getting faster transmission of loans in case of falling benchmark rates, this shall also result in faster increase in loan tenures/EMIs in case of increasing benchmark rates which could result in payment shocks to the borrowers. There have been periods in the last decade where key external benchmark rates have moved up by 200 bps," he said.