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Banks shy away from lending to real estate firms

india Updated: Sep 13, 2011 21:26 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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The going is likely to only get tougher for cash-starved real estate majors, with their current outstanding debt crossing Rs 1,20,000 crore against Rs 88,000 crore last fiscal year, an increase of 36%. Banks have decided to go slow on lending to the realty sector.

“It is a cause for concern for real estate majors with banks shying away from lending to the sector, especially in the wake of the new land acquisition bill,” a senior executive with a real estate firm told HT.

This has also led to a delay in the completion of housing projects in several parts of India. The alleged involvement of real estate companies such as Unitech and DB Realty in the 2G spectrum scam has also aggravated the problem.

With banks deciding to go slow in financing real estate majors, the latter are resorting to private equity investors for money to pay back the burgeoning debt portfolios.

“Banks are very cautious while lending to real estate majors, we are not very keen on this sector especially now that the level of bad assets has shown a significant rise,” chairman of a public sector bank told HT on the condition of anonymity. The level could see a further rise due to non repayment from this sector, he said.

The Reserve Bank of India has also shown its discomfort with banks opening their purses to real estate majors.

The central bank has been revising regulatory guidelines relating to lending to the real estate sector from time-to-time to ensure that there is no fraud or default in the sector.