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Banks to Provide Support to Large Real Estate Companies
India’s troubled realty firms may soon be thrown a lifeline, with the Reserve Bank of India indicating that banks consider providing support to large real estate companies. Recently, the regulator wrote to select banks telling them to assess the financial support given to builders and to finalise a workable solution, a senior banker said. The realty sector has been one of the worst hit after RBI raised interest rates last year to combat rising inflation. The tightening of interest rates, coupled with the economic slowdown, has resulted in a slump in home sales and commercial property development. Earlier, realty firms had raised money from the capital markets and through private equity, but since the start of the downturn, their funding sources have been choked.
Many banks have been reluctant to lend to this sector, given the risks involved. However, considering the knock-on impact that a slump in the real estate industry has on allied sectors such as cement and steel, the government is worried. Early last month, RBI had collected data from various banks relating to their funded and non-funded exposure to various real estate firms. This was followed by letters to lead banks of select real estate companies. Although RBI has not told banks explicitly to provide support to real estate companies, it has asked them to revisit the status of some of the projects.
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