New RBI rule compress fund flow to realty
A recent directive by the Reserve Bank of India (RBI) to banks has added to the woes of the real estate sector , which has already been impacted by high rates of interest and poor sales.
The directive has cautioned banks against lending to the sector and also urged them to check the balance sheets of developers as well as valuations quoted by them carefully before sanctioning loans.
“Wherever documents of title are submitted as security for loans, there ought to be a process where documents of title are subject to verification regarding their genuineness, for large-value loans,” RBI said in a notification last week.
Plenty of frauds have been committed by borrowers who submitted forged documents that were certified by independent agencies or chartered accountants, the central bank observed. “In case of loan against the security of land, banks may also seek reports from local revenue authorities regarding the title deeds before sanctioning the loan,” RBI said in a notice to chairpersons and chief executive officers (CEOs) of banks.
The notification was the direct fallout of developers quoting high property valuations and has had an immediate impact on the sector, which is already parched for money because of low sales as well as a high debt portfolio.
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“Banks have in the last four months been cautious about lending to the real estate sector because of the various scams surrounding it. Now, after the RBI directive, banks are keeping real estate companies at bay,” said a senior official of the State Bank of India. The bank has already rejected half-a-dozen loan requests from various developers in the last week itself. Similar views were also aired by officials of other banks.
“We are cautions in sanctioning loans to real estate companies & also while giving property loan. They are sanctioning loans only to developers whose track records are tidy. These days they are avoiding sanctioning big-ticket loans to developers. They have rejected a couple of loan requests after the directive & are carefully examining the balance sheets of companies,” an official of Punjab National Bank told Mail Today.
Developers confirm that banks have become cautious in lending to the sector. “Banks are cautious & selective in lending money to actual estate players. Only a few players, who have lovely track records in terms of repayment of loan & overall past experience are being lent money by the banks,” said Naveen Raheja, chairman & managing director, Raheja Developers.
People applying for home loans are also feeling the impact. Banks said that they are lending only to those buyers who have a tidy track record & a high capability to repay the loans.
As most of the developers are facing difficulty in getting money for construction, they are opting for plot sales. Even large developers such as DLF, Unitech, Sobha, & Lodha Developers are selling plots in lieu of developed land to generate money.
“The banks are not lending to troubled projects or to developers who have a record of delays or have a large debt portfolio,” Raheja added.
Source: [businesstoday]
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