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As the RBI on May 5 permitted small borrowers more time to repay debt and allowed banks to give priority loans to vaccine makers, hospitals and COVID-related health infrastructure to cushion the blow of the pandemic on the economy, the real estate sector urged the government to dole out similar measures to address the concerns of large businesses and labour intensive sectors.
The apex bank’s announcements are expected to provide major relief to real estate-linked SME players, especially suppliers of input material for the sector. The working capital review will also help these stakeholders to tide over their liquidity issues as their cash flows have been partly impacted due to the recent lockdown restrictions in various states, experts said.
Suppliers of other raw materials for the real estate sector are generally in the small and medium sectors. A good number of small and medium organisations supply raw material for fit-outs. These include mechanical and plumbing suppliers.
"RBI has recognised the hardships faced by individuals, small businesses and medium and small enterprises due to the lockdown and provided Resolution 2.0 measures for restructuring loans to small borrowers up to Rs 25 crore. This is expected to provide relief to real estate-linked SME stakeholders," said Samantak Das, Chief Economist and Head of Research & REIS, JLL India.
CREDAI had urged RBI to take similar measures which shall address concerns of large businesses and labour-intensive sectors like real estate and hoped that these would be announced in the coming days.
“We strongly believe that measures that make accounts classified as SMA 1 (Special Mention Accounts) and SMA 2 also eligible for restructuring and interest moratorium coupled with additional liquidity under ECLGS 3.0 passed onto real estate projects will kick-start the engines of economy and job creation which are most important to offset the effects of the second wave. Further, it is high time that the Government considers reclassification of SMA across businesses as this would ease liquidity pressure on NBFCs and Banks,” said Harsh Vardhan Patodia, president CREDAI.
“The RBI Governor in his announcements mentioned a slew of measures and schemes, such as second round of loan restructuring and other relief measures as also term liquidity facility of Rs 50,000 crore for healthcare and SLTRO for Small Finance Banks. The focus of his announcements were small businesses, individuals and MSMEs; real estate as an industry looks forward to support in form of measures which will help tide over the challenges posed by the second wave,” said Niranjan Hiranandani, National President, NAREDCO.
Amit Modi, director ABA CORP and president elect, CREDAI Western UP, also hoped that the real estate sector would be given due consideration in the next round of announcements, allowing for further progress.
Experts said that RBI’s unplanned announcement reflects seriousness and urgency to address financial challenges due to the current COVID-19 situation. The clear focus is on creating a pool of liquidity for augmenting medical infrastructure and small businesses/ individual borrowers who have borne the maximum brunt due to uncertainties in the business.
An on-tap liquidity window of Rs 50,000 crore with tenors of up to three years at the repo rate is being opened till March 31, 2022, for ramping up COVID-related healthcare infrastructure and services in the country.
An initiative like Special Long-Term Repo Operations for Small Finance Banks for on-lending to individual borrowers shall help the smaller entrepreneurs, and Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses, and MSMEs for borrowers below Rs 25 crore.
“The most vulnerable shall benefit from restructuring the loans impacted by COVID-19. The key real estate service providers like labour and service contractors, suppliers of materials are also likely to benefit from the MSMEs,” said Piyush Gupta, Capital Markets & Investment Services (India) at Colliers.