The State Bank of India (SBI) on Wednesday launched a scheme for its home loan customers, wherein it guarantees the refund of the principal amount if a builder fails to complete the project within the stipulated time.
The scheme is applicable for apartment projects, wherein the SBI is the sole lender. “This scheme will serve the purpose of boosting the stressed real estate sector and will give confidence to buyers as well," said Rajnish Kumar, chairman, SBI.
Kumar added that these loans will be at the same rate as its existing home loans and borrowers can seek a refund if the builder fails to meet the deadline under the Real Estate (Regulation and Development) Act. All builders have to get their projects registered under RERA and declare a timeline for its completion.
Interestingly, the SBI was never too big on lending to developers. According to an SBI official, who did not wish to be named, the total exposure of residential and commercial real estate loans by the bank will be less than ₹5,000 crore. That is about 0.2% of its ₹22.48 trillion loan book as of the September quarter.
The Reserve Bank of India (RBI) has always seen commercial real estate exposure by banks as a risky affair compared to other segments. It has therefore mandated banks to set aside more money as standard asset provisions of 0.75-1% for these loans. Typically, banks have to set aside 0.4% of a loan as provisions for most other loans.
Moreover, the ongoing economic slowdown has hit the real estate sector hard, with demand for new housing units slumping in the second half of 2019. According to data from ANAROCK Property Consultants Ltd, sales in top six cities, including Mumbai Metropolitan Region, National Capital Region and Bengaluru, fell 22% in the second half, compared to the first six months of 2019. However, sales in 2019 saw an increase of 5% year-on-year to 261,370 units in the cities cited above.
SBI said on Wednesday that its scheme will focus on the affordable housing segment, with home price of up to ₹2.5 crore in seven Indian geographies initially and then move to 10 cities. It has already tied up with Sunteck Realty Ltd and plans to expand it to other builders, fulfilling the prescribed due diligence criteria by the bank for loans between ₹50 crore to ₹400 crore.
“This product has huge implication on real estate industry and homebuyers. It will improve the velocity of sales," said Kumar.
SBI last month cut its lending rates linked to the central bank’s repo rate by 25 basis points (bps) to 7.8%, lowering borrowing costs for small businesses and homebuyers. Earlier in December, SBI had announced a 10 bps reduction in its one-year marginal cost of funds-based lending rate (MCLR) to 7.9%. It was the eighth consecutive cut in MCLR in FY20. Banks used to follow MCLR norms for setting rates for retail loans before the advent of external benchmarking.