Lenders count on government's realty fund for NPA relief

The Alternative Investment Fund (AIF), to be set up by the government to revive the housing sector, will come as a major relief to lenders that are looking to shed off bad loans stuck in stalled projects.

Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC), said that some developers have been facing troubles only due to a slowdown in sales and had to be declared as NPAs.

"This is where we expect the fund to be of great help. The bottom line is that the projects need to be completed or else more developers, home buyers and lenders will suffer," Parekh said.

Also read: Government approves Rs 25,000 crore fund for stalled housing projects

He added that regulatory authorities should also consider special dispensation for lenders that are willing to help out projects that are already classified as NPAs.

"In the current environment, no lender is going to touch an account that is already an NPA, unless there is special dispensation," he said.

State Bank of India (SBI) Chairman Rajnish Kumar said that with the government as the sponsor, it shouldn't be difficult to close the fund quickly and start investing. "This is the need of the hour," he said.

Kumar added that the AIF can help plug funding gap in projects where the existing lenders are not willing to increase their exposure.

"It may be an NPA but not be in NCLT as yet. If the fund is allowed, it can buyout NPA. The existing lenders that are stuck may be willing to do a settlement," Kumar said.

Kumar said that there are projects in need of additional funding despite being standard assets.

Kumar and Parekh were speaking at the India Mortgage Leadership Conclave held on November 6.

Finance Minister Nirmala Sitharaman, on November 6, announced in a press briefing that projects that have been classified as non-performing assets (NPAs) will be covered under the AIF. It will also cover projects stuck in cases under the National Company Law Tribunal (NCLT).

"Even if a project is under arbitration of NCLT and has not been announced as liquidation worthy, can it be covered under this AIF. The main criteria to be covered under this scheme is that the project's net worth must be positive," Sitharaman said.

With an initial corpus of Rs 10,000 crore from the government, the AIF will likely see contributions of Rs 15,000 crore from the State Bank of India and LIC, among others.