RBI’s relief for real estate: Builders will have one more year to repay dues before it becomes NPA

By: and |
Updated: Feb 06, 2020 1:48 PM

RBI has today decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate.

realty, real estate, RBI , Reserve Bank, NPAThe RBI’s decision is a big relief for the real estate sector as the builders will get one more year to redo the whole thing and become financially stable.

Builders and real estate developers will now have one more year to repay their dues before they are classified as non-performing assets (NPAs) and the projects being taken over. To complement the initiatives taken by the government in the real estate sector, the RBI has today decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. The Reserve Bank announced this in the statement on Developmental and Regulatory Policies.

“The RBI’s decision is a big relief for the real estate sector as the builders will get one more year to redo the whole thing and become financially stable,” Hakim Lakdawala, Group Promoter, Goodwill Developers, told Financial Express Online. At present, defaulting three straight installments classifies the account as NPA, which is a burden, hence getting extra time is good for the industry, he added. 

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Loans for projects that have been delayed for reasons beyond the control of their promoters have been extended by another one year without downgrading the asset classification. This aligns with the treatment accorded to other project loans for the non-infrastructure sector.

“This is a big move and will bring the much-needed relief to the cash-starved real estate sector – and to both developers and the HFCs from the liquidity perspective. It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to complete several stuck projects,” Anuj Puri, Chairman – ANAROCK Property Consultants. That said, it will not address the other main issue prevailing in the real estate sector – that of continuing low demand, he added.

However, the industry is unhappy after the RBI has maintained the status quo on the interest rates by keeping it unchanged for the second time in a row. “Contrary to industry expectations, this is the 2nd time repo rates are unchanged. The belief is that credit take-off will resume, which is why policies are holding this firm, however, this has not happened. Our economy is currently at a point where much could and needs to be done to instill confidence in the buyer and create a scenario where it will boost investments in the business,” Amit Jain- MD, Arkade Developers. Overall, what it is showing the approach of just wait and watch, rather than deciding and acting out for a remedy, he added.

Meanwhile, the Nifty Realty index was trading over a half a per cent higher at 328 points led by gains in Brigade, Sobha, Indiabulls Real Estate, Godrej Properties, and Oberoi Realty. RBI in its policy said ‘no downgrade of commercial realty loan if delay genuine’. Brigade Enterprises, gained the most in Nifty Realty index, with up 3.32 per cent to trade at 240 on NSE, while Sobha was trading 2 per cent at Rs 414.45 apiece.

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