Realty companies, NBFCs get leeway on commercial project loans

MUMBAI: The Reserve Bank of India (RBI) on Friday threw a lifeline to non-bank lenders and real estate firms by allowing the former to restructure commercial realty project loans for a year. These finance companies will now be able to restructure such loans without those being classified as restructured assets, and give fresh funding to developers.

This leeway was first made available to banks in February. As per the rules, loans would be treated as standard where commencement of commercial operations of projects had been delayed for reasons outside the control of the promoters. This was beyond the one-year extension permitted in normal course. “It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate,” the central bank said.

As per RBI data, NBFCs’ outstanding credit to commercial real estate was Rs 1.3 lakh crore as of September 2019. As of January 2020, banks had an exposure of Rs 2.27 lakh crore to the sector.

According to India Ratings, a month’s lockdown would erode 8-10% of revenue for real estate companies. The government has announced a 40-day lockdown, which is now scheduled to get over on May 3.

“The proposal to extend the date for commencement for commercial operations for real estate projects funded by NBFCs will reduce the repayment pressures for developers,” said Karthik Srinivasan, the group head of financial sector ratings at Icra. “This will improve the developers’ cash flows for execution and completion of the project and improve the future saleability of their projects and their cash flows.”

In November last year, the government announced the setting up of a Rs 25,000-crore alternative investment fund to provide relief to developers to complete unfinished projects. The fund, being anchored by SBICAP, is aimed at providing last-mile funding to developers.