Banks wary of realty loans as 2G scam sours lending mood | india | Hindustan Times
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Banks wary of realty loans as 2G scam sours lending mood

The already cash-starved real estate majors have now got more to worry about. Mahua Venkatesh reports.

india Updated: Apr 26, 2011 02:04 IST
Mahua Venkatesh

The already cash-starved real estate majors have now got more to worry about. Banks have quietly decided to choke credit to the sector, in view of the alleged involvement of realty majors Unitech and DB Realty in the 2G spectrum scam.

The squeeze would mean that there could be a delay in completion of on-going housing projects while real estate firms may put off new housing project announcements.

The real estate sector has a total estimated debt of about R80,000 crore, of which more than R20,000 crore would come up for repayment in the current fiscal. Companies in the sector would now have to scout for fresh sources for financing.

"We will go slow in lending to the real estate sector," the chairman of a public sector bank told Hindustan Times on the condition of anonymity. http://www.hindustantimes.com/images/HTPopups/260411/26_04_23a.jpg

Senior bankers who did not wish to be identified said banks have already become more “conservative” in lending to the realty sector with allegations that ineligible companies were awarded scarce telecom spectrum at throwaway prices.

The sector was also hit by allegation that funds raised through loans for housing projects were siphoned off. Payment in residential projects is usually construction-linked, where cash is paid at each stage of development. “Once the project gets choked in the middle, the money flow also thins down,” said an industry expert.

The Reserve Bank of India has also shown discomfort with banks opening their purses to real estate majors. The central bank had also increased the risk weight for residential housing loans of R75 lakh and above to 125% to rein in rising real estate prices.

Experts however play down the 2G impact. “Banks have been ultra conservative in lending towards the real estate sector for the last few months. The alleged involvement of Unitech and DB Realty in the 2G spectrum scam will not have any major impact though it would have its own complexities,” Anurag Mathur, MD, Cushman & Wakefield said.