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CREDAI and IBA to make joint representation to RBI to resolve issues related to last mile funding

IBA has recommended that CREDAI come up with a model structure wherein it could take over unfinished projects and complete them.

Vandana Ramnani @vandanaramnani1
Representative image
Representative image

In a recent meeting with representatives of the Indian Banks Association (IBA), real estate developers discussed various issues like taking over of unfinished projects, one-time restructuring of loans on account of several regulatory changes, land funding and passing on infrastructure benefits for affordable housing .

IBA has recommended that the developers' body CREDAI come up with a model structure wherein it could take over unfinished projects and complete them. CREDAI is currently in the process of drawing up this model structure and will make a joint representation along with IBA to the Reserve Bank of India by April end, sources told Moneycontrol.

"Bankers have asked us to come up with a model structure wherein any loan which is under duress or a project which has run into financial trouble and is not moving towards closure, CREDAI shall work jointly to ensure that projects are concluded and homes delivered. We are in the process of coming up with a model structure where bankers, developers, and customers can come together and complete those projects. We (IBA and Credai) are in the process of making a joint representation to RBI by April-end," they said.

Other issues that came up for discussion included, one-time restructuring on account of new laws like demonetization, RERA and GST. Funding for land, passing on the infrastructure benefit of lower interest rate for affordable housing, interest moratorium or interest to be funded during development stage of a project like in the case of infrastructure projects, lowering capital blockage for developer loans and home loans, issue of stamp duty to be considered part of home loans etc.

"Post-RERA, developers are not allowed to do pre-sales as one needs all approvals and a RERA registration to commence sales. It is due to this that we have asked for one-time restructuring of loans. We have asked banks to look at land funding as post RERA one cannot use surplus funds from projects until lenders are there to buy or fund land acquisition, also land funding today is available at a rate of 23 percent to 27 percent which makes project cost high as land is 50 percent to 60 percent of the project cost. It is due to this reason that developers are being forced to raise money through NBFCs and private equity funds as land is not funded by banks.

"We also discussed about the issue of affordable housing being brought under the definition of infrastructure. Currently, there are several definitions – one by the RBI, another by the ministry. This has made it tough for bankers to actually pass on the infrastructure benefit for affordable housing. We have also requested that interest be taken as part of project cost and should be funded as it is the case with other infrastructure projects," sources said.

Both CREDAI and IBA will make a joint representation to RBI by April 15 and find a solution, sources said.

"We are also looking at setting up a structure similar to the gems and jewellery sector, which holds quarterly meetings with the IBA to discuss problems and implement suggestions. We are looking at setting up a similar committee with Credai representation to make a real estate committee, meet quarterly to discuss issues that the sector is facing and come up with a model structure through which this committee can meet once a quarter to discuss issues of the industry and conclude unfinished projects to boost the housing demand and work on the Housing for All vision," sources said.

The meeting was attended by Sunil Mehta of Punjab National Bank,  Rajnish Kumar of State Bank of India, Subroto Gupta of IDBI Bank, Ravi Narayanan and Sunir Ramchandani of ICICI Bank, Sunil Shaligram of HDFC Ltd and also representatives from Axis Bank, Union Bank of India and Syndicate Bank. The CREDAI delegation was represented by Getamber Anand,  Boman Irani and Binitha Dalal.
First Published on Mar 19, 2019 01:42 pm
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