The government is considering a proposal to allow debt restructuring for real estate projects that face delays due to sovereign clearances. It is also considering creating a sub-category of commercial real estate-housing to allow an extended repayment period to developers.
As per the current policy, any loan given to developers for non-infrastructure sectors turns into a non-performing asset (NPA) when the project gets delayed by more than six months after the date of commencement of commercial operations (DCCO) without any payment made to the lenders. The DCCO dates means the time when the developer actually commences construction after getting the necessary approvals. After this period, banks usually declare the loan as an NPA if repayments are not made for a period of 90 days.
The proposal form part of the discussions initiated by the ministry of housing and urban poverty alleviation (HUPA) with the finance ministry and the Reserve Bank of India. The changes could be announced soon.
?We are in discussions with the finance ministry and the RBI to allow flexibility to the real estate sector for repayment of their loans considering their good track record. Banks already allow restructuring of loans for delays on part of government clearances to certain infrastructure sectors and we have recommended that the same should be extended to the reality sector as well,? minister of HUPA Ajay Maken told FE.
A lot of projects in India get delayed due to problems such as environmental and forest clearances and land acquisition issues. According to Maken, as these delays turn the loan into an NPA, the developer becomes a defaulter and faces problems in raising funds further.
Experts say that the move is in the right direction as developers often get penalised for no fault of theirs. ?This proposal to consider debt restructuring is much needed for the sector. A lot of projects are facing regulatory and statutory issues and are unable to take off. Once allowed, it will help developers to avoid defaulting loans,? said Navin Raheja, CMD of Raheja Developers, and president of National Real Estate Development Council (NAREDCO).
Maken said that apart from relaxed lending facility, he has also asked the finance ministry to give infrastructure status to the housing sector, and relax provisioning norms for it so that banks are able to extend attractive loans to buyers.
