Banks, HFCs plan joint strategies for defaults in G Noida

Written by Sitanshu Swain | Kumud Das | Mumbai | Updated: Aug 1 2011, 05:31am hrs
With over R1,300 crore at stake, both the banks and housing finance companies are now planning joint strategies to tackle the possible default crisis arising out of their real estate exposure in the Noida Extension region, after the Allahabad High Court cancelled land acquisition by the Greater Noida Authority in several villages.

The banks are now planning to ask the Indian Banks Association (IBA), the official representative body of banks, to assess the situation and prepare a strategy before moving to the Reserve Bank of India for resolving a possible default crisis.

This is not a bank specific problem anymore. The possible default scenario has something to do with the system and needs to be tackled collectively before it snowballs into a bigger crisis. The matter is being reported to the IBA, said RN Pradeep, CMD, Corporation Bank. The bank has an exposure of R100 crore to three builders having operations in the region.

National Housing Bank, the regulator for housing finance companies (HFCs), is also assessing the situation. We are in the process of collecting the information on the HFCs exposure to the disputed region, both in terms of individual (direct retail loans) and projects. Largely, there are individual loans, RV Verma, CMD, said.

In the light of the court directive, the policy on land acquisition is already being revisited by the government. Public agencies that acquired the land are working out a solution that could balance the interest of farmers, builders, developers and borrowers/buyers, he said.

Meanwhile, the banks, as a part of revamped strategy due to the high real estate prices and rising rates, are reducing their exposure to the sector. A senior State Bank of India official said on condition of anonymity that the banks chairman, Pratip Chaudhuri, has directed reduction of the internal exposure on commercial real estate to 4% from 5% of the banks entire loanbook. The reason for such a decision is that a lot of projects are lying unsold due to low demand, the official said.

Rakesh Sethi, ED, Punjab National Bank (PNB), said his banks exposure to the commercial real estate is at R8,300 crore comprising 3% of the total loanbook, as against R9,000 crore during the corresponding period of the previous year. We are slowing down our portfolio in the space and are being cautious. Another issue being that no fresh proposal is coming to us, he said.

RK Bakshi, ED, Bank of Baroda (BoB), said, We are against financing expansion in a sector where there is a problem. Our current exposure in the commercial real estate is at R4,000 crore, which comprises 2.5% of our total loanbook. There is a 20% growth on y-o-y basis in the sector. We have not stopped, but we are cautious, Bakshi said. BoBs banks total exposure in Noida was R300 crore.

Except for quite a small segment, none of the loan is affected by the court order. Nevertheless, we are tracking it closely. We are holding talks with all concerned builders, another official said.

A Bhargava, ED, Canara Bank, said that the banks exposure to the commercial real estate sector is merely R1,000 crore, which comprises only 0.5% of its total loanbook. The figure may not change by end of year. We are getting cautious towards the sector. In the rising interest rate scenario, where the prices of properties are not coming down, there is not much demand in the sector, Bhargava said.

BA Prabhakar, ED, Bank of India, said his banks exposure towards the commercial real estate is at 2.37% or R3,817 crore, as against 3.79% during the same period a year ago. We have not stopped giving loans to the sector, but are very selective. It is a highly volatile sector. If demand is good, everything is fine, but in case there is a drop in demand things go for a toss, Prabhakar said.

M Narendra, CMD, Indian Overseas Bank, said the banks current exposure to the sector stands at R5,247 crore as against R5,204 crore, during the corresponding period of the last financial year. There wont be any major change, but we will be selective towards this sector, he said.

CG Pinto, GM, Corporation Bank, said that the bank has almost stopped providing loan to the commercial real estate sector since the beginning of the year.