Real estate sector lauds RBI's decision on lending by banks to NBFCs, HFCs

The Reserve Bank of India's announcement on March 23 that bank credit to registered NBFCs towards agriculture, MSMEs and housing sector up to prescribed limits will be treated as priority sector loans for a year starting April is expected to ease liquidity constraints for the real estate sector, experts said.

After undertaking a review, it has been decided to extend the priority sector classification for bank loans to NBFCs for on-lending for 2020-21, RBI said in a statement.

"Priority sector tag for bank lending to NBFC sector for on-lending purpose will ease the liquidity constraint and cost of funding for the beleaguered NBFC sector. Given that NBFC sector was in forefront for lending to SMEs, the move will also provide relief to the SME sector that has been hit hard by the ongoing economic turmoil. Easing of liquidity for NBFCs will also help the real estate sector," said Rajani Sinha, Chief Economist & & National Director - Research at Knight Frank India.

Track this blog for latest updates on the coronavirus outbreak

The move will enable faster dissemination and disbursal of housing loans as NBFC’s as well as banks would be disbursing these more aggressively given that these would qualify as priority sector lending, said Gagan Randev, National Director, Capital Markets at Colliers International India.

Real estate developers also welcomed the move.

"With the coronavirus outbreak bringing economic activity to a halt, this announcement is welcome. This was a long-awaited demand from Credai as the real estate sector supports more than 300 industries. The priority sector bank lending to the NBFC sector will provide immense relief to the real estate sector as it would ease liquidity and increase demand," said  Jaxay Shah, national chairman, Credai.

"The menace of this pandemic has particularly hit at a very sensitive time since its financial year closing hence a fiscal the stimulus was required to cope up in this current scenario. India Inc will continuously seek economic intervention from the government like suspending Bankruptcy Law for a few months, rescheduling loan repayments, a one-time rollover for debt-restructuring to salvage the economic challenges for real estate companies,” said Niranjan Hiranandani, National President – NAREDCO.

RBI’s latest move in the wake of the ongoing pandemic will bring in some respite and as such help increase credit disbursement in these three sectors.

"Within the housing sector, the affordable segment will especially benefit from it. Positive moves in the current times by both the RBI and the government are obviously the need of the hour," said Anuj Puri, Chairman - ANAROCK Property Consultants:

However, it is also a fact that the Covid-19 scare and increasing lockdowns across cities have dented demand and supply within the housing sector. The complete lockdown not only impacts new launches and housing sales but will eventually create other big issues – with construction activity severely hit across cities, project deliveries will be delayed.

"We will, therefore, not see as much traction of such interventions as could have been expected in less dire times. However, if they sustain into the eventual recovery phase, they can generate considerable forward momentum," Puri added.

As per the revised norms, on-lending by NBFCs for 'term lending' component for the housing sector limit has been enhanced from Rs 10 lakh to Rs 20 lakh per borrower for classification of the loan as priority sector lending.