A day after Finance Minister Nirmala Sitharaman spoke about reforms in the real estate sector, lenders call for government intervention for the ailing sector and sought approval for restructuring of real estate projects without being tagged as non-performing assets. Speaking at the Indian Mortgage Leadership Conclave organised by India Mortgage Guarantee Corporation, HDFC Chairman Deepak Parekh has sought for a one-time restructuring to kick-start lending to the sector.
“I do believe that we can overcome this crisis of confidence if lenders are allowed a one-time restructuring of certain real estate loans – particularly for stuck projects where building approvals have been delayed. If these restructured accounts are considered as standard assets for a period of say, 12 months, lenders will stop being so diffident," Parekh said.
Parekh said that such a regulatory concession was given by the Reserve bank of India in 2008 which helped revive sentiment. According to him, restructuring will enable last mile funding even to assets that have slipped owing to tight funding conditions and ensure that these projects are completed.
Axis Bank managing director and chief executive officer Amitabh Chaudhry too felt that there is a need to help those projects which are stuck in 60% plus construction progress and are not able to carry forward. In such cases, lenders are neither not able to invest more funds nor are the developers able to construct and finish the project without further investments.
“We need to have a mechanism where lenders can look to restructure these assets, lend more with stronger governance, end use monitoring and look to complete the projects. The fine print of the govt schemes on this is awaited, we should be able to see the industry making progress on it once the same gets rolled out," said Chaudhry.
According to a Fitch Ratings report in October, around $10 billion of development loans are coming up for repayment in the first half of 2020 and this may impact mainstream banks that have lent money to shadow lenders or invested in their bonds. Sitharaman said the government wants to ensure that the crisis in the real estate sector does not spill over to other industries.
Defaults by Dewan Housing Finance Corp. Ltd and Altico Capital have aggravated the issue, making banks excessively cautious in extending loans to housing finance companies (HFCs) and non-banking financial companies (NBFCs).
A study jointly conducted by industry body Ficci, National Real Estate Development Council and consultant Knight Frank has stated that the outlook for the country’s real estate sector in the September quarter has fallen to the level that was recorded during the uncertain times before general elections in 2014.
The number of property developers reporting bankruptcy has doubled during the past nine months, which has added to the woes of NBFCs, according to a 14 October Reuters report.
As of 30 June, 421 developers are under the corporate insolvency resolution process, up from 209 as of September-end of last year, according to data from the Insolvency and Bankruptcy Board of India.