Banks not ready to fi­nance projects with prob­lems

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Most projects that do not have ba­sic fa­cil­i­ties in place, are not com­pleted on time or do not re­ceive a com­ple­tion cer­tifi­cate due to some vi­o­la­tions by builder, are of­ten not fi­nanced by banks. What this means is that buy­ers who want to in­vest in th­ese projects might not get fi­nanced by lenders and de­pend en­tirely on their sav­ings to pay for the prop­er­ties.

Banks carry out le­gal and tech­ni­cal due- dili­gence on each project they fi­nance. “If some­thing goes wrong with the project mid way, we may stop fund­ing the project but will never ad­ver­tise that we have stopped fi­nanc­ing it. But if a cus­tomer were to ap­proach us, we will in­form him that that we are not ex­tend­ing loans for that par­tic­u­lar project be­cause of some tech­ni­cal is­sue,” says a se­nior banker.

“For ex­am­ple, if tow­ers 5, 6 and 7, are lo­cated on dis­puted land, we may send out an in­ter­nal com­mu­ni­ca­tion that th­ese tow­ers should not be funded but will con­tinue to fund tow­ers 1, 2 and 3 that are per­mis­si­ble,” he says.

In In­dia, there is a large de­liv­ery risk as­so­ci­ated with projects. Com­ple­tion of a project is de­pen­dent on the de­vel­oper and the lo­cal com­pe­tent au­thor­ity. Lend­ing is de­pen­dent on the track record of a de­vel­oper and banks can stop dis­burse­ment even mid way.

Cus­tomers should, there­fore, check the de­liv­ery record of a de­vel­oper, the mar­ketabil­ity of a project (whether it can be com­pleted on time and whether the buyer can sell it). Buy­ers should check with the bank whether the project is ap­proved and take time to ar­rive at a de­ci­sion. “Don’t sim­ply look for dis­counts and sub­ven­tion schemes. Spend enough time to do duedili­gence,” ad­vises an­other banker.

T he s t at e gover nment should also get a pub­lic no­tice pub­lished stat­ing the names of devel­op­ers who may not have paid the land dues, he says.

There have been cases of banks sanc­tion­ing loans for a hous­ing block with 10 floors au­tho­rised by the hous­ing board. In case a de­vel­oper adds more floors to the tower, most banks will not dis­burse loans to cus­tomers for those floors, says an­other banker.

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