Realty lending: govt mulls guarantee corpus for banks | business | Hindustan Times
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Realty lending: govt mulls guarantee corpus for banks

business Updated: Feb 22, 2011 15:07 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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As wary banks tighten norms for the scam-scarred realty sector, the government is planning to set up a fund for lenders that would act as a guarantee corpus to goad banks to lend for housing projects.

Banks can take recourse to the fund if realty companies default on their loans. The modalities of the fund, which is likely to be around Rs 1,000 crore, are still being worked out.

National Housing Bank (NHB), the state-owned housing refinance agency, will act as the nodal authority for the working of the fund.

Finance minister Pranab Mukherjee is expected to make an announcement on the fund in the budget for 2011-12.

“Housing sector needs to get a push, though banks have developed a cautious approach in lending for housing especially in the wake of the recent spate of events. The move would ease financing into the sector,” a government source that did not wish to be identified said.

Banks have become more “conservative” in extending credit to the realty sector amid a slew of allegations about ineligible companies receiving scarce telecom spectrum at arbitrary and throwaway prices.

The sector was also hit by allegations of siphoning of funds raised through loans for housing projects. The real estate sector has an estimated debt of about R75,000 crore of which R25,000 crore is coming up for repayment in the current fiscal.

“The objective of the proposed fund is to put banks at ease by offering a kind of guarantee that they can dip into this pool if loans turn bad,” said the source.

Bankers said they have become more cautious in lending to realty companies and would rather prefer lending funds to old economy brick-mortar sectors such as steel, cement, textiles and manufacturing than to more risk-prone real estate sector.