Real Estate Sector To Benefit From RBI’s Eased Norms

New Delhi, February 7:  There was no relief for the real estate sector in terms of a cut in lending rates by the Reserve Bank of India (RBI) which announced its bi-monthly monetary policy statement on Thursday. The sector has wholeheartedly welcomed the central bank’s decision to extend the date of commencement regarding project loans for commercial real estate by a year, without downgrading asset classification. Industry observers said that this would give a major relief to developers whose projects are stalled for reasons beyond their control, as such projects will not be classified as Non-Performing Assets (NPA).

"It has been decided to permit extension of the date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification. This would complement the initiatives taken by the Government of India in the real estate sector," the RBI said in its statement.

The RBI’s move is intended to bring these loans in line with the treatment rendered to other project loans in the non-infrastructure sector. Detailed guidelines on this are awaited from the RBI.

Ashish Bhutani, CEO, Bhutani Infra, said this was a long pending demand of the industry.

“Needless to say, the move will help the commercial sector immensely as it means developers besides getting additional time to complete the project, may also become eligible to raise funds. The move will also help banks as they will have to shell out a lower amount towards provisioning,” he said.

Harinder Singh, Chairman, and Founder, Realistic Realtors, also welcomed the decision saying that since no such loan will be now be classified as NPA, it would benefit the commercial real estate sector vastly, especially the projects which are nearing completion and whose delays were outside the control of developers.

“This shall also motivate the developers to push the completion within the extended period of one year. It is a great step in the right direction giving support to the realty sector and measures like these will surely help to pull the industry out of the toughest phase,” he added.

Abhishek Bansal, Executive Director, Pacific Group, added that many of the projects including some commercial projects at times get stuck for reasons on which developers have little or no control.

“In this context, we welcome the decision. This means that such loans will not be classified as NPA and this would benefit the commercial real estate segment immensely. The move will also help banks as they will have to do lower provisioning, thus increasing their capacity to lend. The industry will eagerly await detailed guidelines on it,” he concluded.