Real estate industry complains to finance ministry about NBFCs, Indiabulls

Published: April 19, 2019 2:25:53 AM

Highlighting the specific case of Indiabulls, in a letter dated April 8, Credai has alleged that Indiabulls being one of the largest lenders in the sector is “causing undue hardship for developers and creating a situation of financial strangulation”.

Real estate industry complains to finance ministry about NBFCs, IndiabullsReal estate industry complains to finance ministry about NBFCs, Indiabulls

By Sanjeev Sharma

The real estate industry has written to the finance ministry, complaining about NBFCs “arbitrarily” increasing interest rates on real estate projects.
Real estate body Confederation of Real Estate Developers’ Associations of India (Credai) has written to finance minister Arun Jaitley seeking issuance of guidelines to non-banking financial companies (NBFCs) for timely completion of real estate projects.

The real estate developers have said some NBFCs are “arbitrarily and unilaterally increasing rate of interest charged on real estate projects”.

Highlighting the specific case of Indiabulls, in a letter dated April 8, Credai has alleged that Indiabulls being one of the largest lenders in the sector is “causing undue hardship for developers and creating a situation of financial strangulation”.

Credai said in the last eight months, Indiabulls has increased the interest rate by 4.5-6% for all developers. “Since RBI has been lowering benchmark rates, it is clear that the interest rate has been increased by Indiabulls arbitrarily and illegally,” it said.

On the other hand, Credai said: “To add to the misery of the developers and homebuyers”, Indiabulls has also increased the escrow percentages from 30% to 100% for many developers.

“Such an increase in escrow percentages is totally illegal and against the norms of Rera which require 70% of the collections to be used towards construction and land cost only. With 100% of the collections going to Indiabulls through the escrow account, no money is available with the developers for construction of the project”, Credai said in the letter.

The industry body also said disbursements are not being made by Indiabulls to carry out construction of the project. “Indiabulls being in a dominant position as a lender is abusing its position and creating a situation of financially strangulating the projects,” Credai said.

When contacted, a Credai spokesperson did not offer comments on the letter. Replying to a query on the issues raised by Credai, a spokesperon for Indiabulls Housing Finance said: “As a result of IL&FS default, banks have suffered due to losses in lending and all NBFCs have suffered due to funds drying up for the sector and costs going up simultaneously for NBFCs, as being reported by the press every week.”

The spokesperson added that Indiabulls Housing Finance is still disbursing and did a total of `11,000-crore disbursal in the last eight months. “Also, escrow mechanism with our borrowers remains absolutely the same as before, developers are free to prepay or refinance if they find interest rates high and we are waiving the entire prepayment fees for such cases. Quite a few developers have also chosen to prepay and we have accepted the repayments without prepayment fees, though it was a part of the agreement,” the Indiabulls spokesperson said.

In its letter, Credai has urged the FM Arun Jaitley to have necessary guidelines issued to NBFCs that the interest rates on ongoing projects may not be revised upwards for as long as RBI does not raise the benchmark rates. It has also said the escrow amount being withheld by the lender must be well within the norms stipulated by Rera to ensure timely delivery to homebuyers and disbursements to ongoing real estate projects may not be stopped for next two years.

Credai has pointed out that the arbitrary increase in interest rates and escrow stipulations lead to delays in projects and escalation in the cost to the ultimate homebuyers.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1SpiceJet to induct six more Boeing 737s, launch 24 new flights
2Jio 4G network most available in India but Airtel provides highest download speeds: OpenSignal
3Europe shows Google what Android should have been; users now get choice of apps on Android phones