If lenders are asked to invest more money in such projects, they would not be able to do that. Developers, in turn, would not be able to construct and finish the project without further investments, thus leading to a stalemate.
The government must work to improve the resolution infrastructure for stressed real estate projects, Axis Bank managing director and chief executive officer Amitabh Chaudhry said on Wednesday. Such infrastructure must include a mechanism for banks to avoid classifying such projects as bad assets if they offer additional funding, he said.
“We are amid a phase where the economic growth isn’t as high as we would like it to be. Developers are unable to continue construction and are becoming defaulters with banks or lenders. We will need an infrastructure to deal with resolution of such cases in a quick and efficient manner – be it cases being dealt with at their end by lenders or cases admitted in NCLT (National Company Law Tribunal),” Chaudhry said at an event organised by India Mortgage Guarantee Corporation (IMGC).
He said there are a lot of projects that are stuck at a stage where 60% construction is completed. They are currently defaulting with banks and their loans stand classified as NPAs. If lenders are asked to invest more money in such projects, they would not be able to do that. Developers, in turn, would not be able to construct and finish the project without further investments, thus leading to a stalemate.
“We need to have a mechanism where lenders can look to restructure these assets, lend more with stronger governance, end-use monitoring and look to complete the projects. The fine print of the government schemes on this is awaited. We should be able to see the industry making progress on it once the same gets rolled out,” Chaudhry said.
He also pleaded for greater “flexibility” being given to lenders while pricing home loans in a system where interest rates are linked to external benchmarks. “We welcome RBI’s move to link floating rate loans to external benchmark for customers. While the move shall result in customers getting faster transmission of loans in case of falling benchmark rates, this shall also result in faster increase in loan tenures/EMIs in case of increasing benchmark rates which could result in payment shocks to borrowers,” Chaudhry said, adding that there were periods in the last decade where key external benchmark rates had moved up by 200 basis points over a brief period.
He said housing finance companies (HFCs) should be able to diversify their sources of funds. While banks rely on deposits as their main source of funding, HFCs rely on banks, debt capital markets for sourcing liabilities and refinance provided by the National Housing Bank. A lot of lenders will need access to a diverse set of capital pools to source funding which go beyond the conventionally-used direct assignment and pass-through certificate (PTC) transactions. “This will help invite a lot more players to invest in housing loan assets or investments, like mutual funds, pension funds etc,” Chaudhry said.