HFCs feel RBI’s directive bridges the regulations between banks and NBFCs, and does boost sentiments and have some impact in conserving the provisioning cost for lenders
Nearly two months after allowing banks some breather to restructure their exposure to commercial real estate projects, the Reserve Bank of India
(RBI) on Friday extended this relaxation to non-banking financial companies (NBFCs) as well.
Accordingly, for loans to be eligible for restructuring, the date of commencement of commercial operations has been extended by a year for commercial real estate projects delayed for reasons beyond the control of promoters. Loans to such projects, including housing and commercial, will now be classified as standard assets by NBFCs.
For real estate players, too, it brings significant relief.
Kamal Khetan, chairman and managing director of Sunteck Realty, said the relaxation of asset classification norms will ease stress on NBFC lending to the real estate sector. It will also ensure stable cost of funds while avoiding distress sale of assets by developers.
According to property developers, as they get an additional year to service their loan obligations, it gives them a chance to conserve cash, deploy it on ongoing projects and achieve project closure. “NBFCs
and HFCs (housing finance
companies) account for over 60 per cent of developers’ loans. With Friday’s announcement, developers can expect more funds from NBFCs
and HFCs,” said Niranjan Hiranandani, managing director of the Hiranandani group.
What’s more critical, according to Jaspal Bindra, executive chairman, Centrum group, is that an extended period for restructuring of assets gives time to realtors waiting for demand revival. “This will bring the much-needed relief to cash-starved developers and help them ease out time for maintaining and managing cash flows,” said Anuj Puri, chairman, Anarock Property Consultants.
In the wake of the falling demand and property prices, Bindra feels that apart from easing cash flows, the dispensation would permit realtors to reprice their assets more effectively. “The blanket period could be used to rework their pricing, which wouldn’t have been possible earlier as it would have created a mismatch between their outstanding loan and asset value,” Bindra added. Such a mismatch would have earlier had a high chance of rendering the loan account as sub-standard asset.
Even for NBFCs, a move of this nature would help them conserve their provisioning cost, which was anticipated to have risen further as real estate demand has become more pale due to the Covid-19 outbreak and the consequent countrywide lockdown.
“From an accounting perspective, NBFCs which have large real estate exposure, will gain from Friday’s relaxation,” said Bindra.
Consequently, among HFCs, the shares of Indiabulls Housing, which has 17 per cent exposure to developer loans, gained most (up 17.6 per cent), while others such as HDFC, LIC Housing and PNB Housing gained 3–8 per cent. Stocks of developers such as Oberoi Realty (13 per cent), Sobha (5 per cent), among others, also clocked strong gains.
While the consensus among NBFCs is that the move will help them better handle their asset quality pressures, they feel that, at the current juncture, revival of demand is more critical if the health of realtors is to reasonably improve. “Without demand picking up, all these measures are merely seen as delaying the problem,” said a chief executive officer (CEO) of a housing finance
company. Bindra, too, feels that unless real estate companies get liquidity through sale of inventory, any amount of regulatory dispensation may not be effective in the long run. “The real estate sector has been in a soup for five years and until the investor community enters into the asset class, there cannot be a meaningful recovery. Realtors have to service their loans at some point and for that they need liquidity through sales and not loans,” he added.
Top executives of HFCs say, in any case, companies have been selling down their commercial real estate exposure, but the pace has to pick up.
“In the past year, we haven’t been giving fresh loans to developers and wherever possible trimming outstandings,” said the CEO.
HFCs feel RBI’s directive bridges the regulations between banks and NBFCs and boosts sentiment. It may have some impact in conserving the provisioning cost for lenders.