NBFCs pull the plug on credit

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@htlive.com n

BENGALURU: Non-bank­ing fi­nan­cial com­pa­nies (NBFCs), which kept credit flow­ing for real es­tate de­vel­op­ers, have fi­nally turned off the spig­ots, spark­ing con­cerns of de­faults and de­lays.

Se­rial de­faults at In­fra­struc­ture Leas­ing & Fi­nan­cial Ser­vices Ltd has made it hard for NBFCs to raise money, forc­ing them to avoid fresh lend­ing and stop dis­burs­ing loans al­ready sanc­tioned. The im­pact could be worse than the days of de­mon­e­ti­za­tion when they were able to raise money de­spite a fall in cus­tomer sen­ti­ments, ac­cord­ing to builders. With banks not fi­nanc­ing realestate de­vel­op­ers for sev­eral years now, most de­vel­op­ers have been kept afloat by NBFC fund­ing. The on­go­ing prop­erty mar­ket slow­down that is now into fifth year has not helped ei­ther.

“There is a sig­nif­i­cant slow­down in lend­ing by NB F Cs, and to make it worse, home loan dis­burse­ments to cus­tomers by hous­ing fi­nance com­pa­nies have also been sus­pended in many cases. What is most wor­ry­ing is that we don’ t know how long this will last,” said Vinod Menon, chief ex­ec­u­tive of­fi­cer (CEO) of Cit­rus Ven­tures Pvt Ltd, a Ben gal ur u-based de­vel­oper. Most de­vel­op­ers are now fully de­pen­dent on NBFCs to fi­nance op­er­a­tions, re pay old loans and even to pay for land. For many, it’s a hand-to-mouth sur­vival, where if NB F Cs don’ t dis­burse money on a time-bound ba­sis, builders will have to rely on project sales, which are not ad­e­quate. An­other Bengaluru de­vel­oper, who did not wish to be named, said while one or two months can be man­aged with sales, timely dis­burse­ment from the lender is re­quired. “This month, a lender has al­ready de­layed pay­ment andi fit con­tin­ues I may have to de­fault ,” he said. Chas­ing rapid growth in mar­ket share and as­sets un­der man­age­ment in re­cent years, many NBFCs and hous­ing fi­nance com­pa­nies( HF Cs) lent to de­vel­op­ers in ex­cess of the value of the un­der­ly­ing as­sets or projects. Many de­vel­op­ers who gorged on debt are fac­ing de­faults af­ter sev­eral rounds of re­fi­nanc­ing and sev­eral years of in­ter­est ser­vic­ing. A se­nior ex­ec­u­tive of a Mumbai- based N BF C con­firmed the sit­u­a­tion is bad, and there is no clar­ity on when nor­mal cy will re­turn .“The cur­rent cri­sis is sig­nif­i­cant be­cause though demo neti­sa­tion was bad, de­vel­op­ers didn’t have a prob­lem rais­ing money. Last 20 days, there is no ac­cess to cap­i­tal for most firms,” said San deep Run wal, direc­tor of Mumbai-based Run­wal Group.

Ac­cord­ing to Amar Merani, man­ag­ing direc­tor and CEO, X an der Fi­nance Pvt. Ltd, NB F Cs and HFCs have vir­tu­ally shut down lend­ing to de­vel­op­ers in the past few weeks. “Many NBFCs and HFCs have been lend­ing to de­vel­op­ers by di­lut­ing credit stan­dards in the last 4-5 years just to show rapid growth to in­vestors. This growth was fu­elled by banks and mu­tual funds. As a re­sult of these ex­cesses, real es­tate de­vel­op­ers to­day are sit­ting on huge debt and the ser­vic­ing of this won’t be easy par­tic­u­larly when sales are very slug­gish for so many projects,” said Merani. Xan­der has never bor­rowed short-term debt and has enough cash re­sources to pro­vide liq­uid­ity to good de­vel­op­ers, wher­ever it makes sense, Me rani said. Hi ran an dani Com­mu­ni­ties chair­man and direc­tor N iran jan Hi­ranan­dani said while all NBFCs didn’t lend in­dis­crim­i­nately, this will lead to a cor­rec­tion and many of them will be beaten out. “Till then, there will be an ob­vi­ous im­pact in terms of fi­nanc­ing for de­vel­op­ers,” he said. “For builders, prop­erty sales is the only way right now. Mid-sized de­vel­op­ers, who form the largest chunk in the sec­tor, have got squeezed badly this time. While con­sol­i­da­tion in real es­tate is al­ready hap­pen­ing, it may gain pace more rapidly now be­cause of the liq­uid­ity cri­sis,’ said Anuj Puri, chair­man, An arock Prop­erty Con­sul­tants.

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