NBFCs pull the plug on credit

HT Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@htlive.com

BEN­GALURU: Non-bank­ing fi­nan­cial com­pa­nies (NBFCs), which kept credit flow­ing for real es­tate de­vel­op­ers, have fi­nally turned off thes­pig­ots, spark­ing­con­cerns 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 worsethanthe­daysofde­mon­e­ti­za­tion when they were able to raise money de­spite a fall in cus­tomer sen­ti­ments, ac­cord­ing to builders. With banks not fi­nanc­in­greal es­tate de­vel­op­ers for sev­eral years now, most de­vel­op­ers have been kept afloat by NBFC fund­ing. The on­go­ing prop­erty mar­ket­slow­down­thatis­now­into fifth year has not helped ei­ther.

“There is a sig­nif­i­cant slow­down­in­lend­ing­byNBFCs, andto make it worse, home loan dis­burse­ments to cus­tomers by hous­ing­fi­nance­com­pa­nieshave also been sus­pended in many cases. What is most wor­ry­ing is that we­don’tknowhow­longthis will last,” said Vinod Menon, chief ex­ec­u­tive of­fi­cer (CEO) of CitrusVen­turesPvtLtd, aBen­galuru-based de­vel­oper. Most de­vel­op­ers arenow­ful­ly­de­pen­dent on NBFCs to fi­nance op­er­a­tions, re­pay­old­loansande­vento pay for land. For many, it’s a hand-to-mouth­sur­vival, whereif NBFCs don’t dis­burse mon­eyon atime-bound­ba­sis, builders will have to rely on project sales, whichareno­tad­e­quate. An­other Ben­galuru de­vel­oper, who did not wish to be named, said while one or two months can be man­aged with sales, timely dis­burse­ment­fromthe­len­deris­re­quired. “This month, a lender has al­ready­de­layed­pay­men­tan­di­fit con­tin­ues I may­have­tode­fault,” he said. Chas­ing rapid growthin mar­ket share and as­sets un­der man­age­ment in re­cent years, many NBFCs and hous­ing fi­nance com­pa­nies(HFCs) lent to de­vel­op­ers in ex­cess of the value of the un­der­ly­ing as­sets or projects. Many de­vel­op­ers who gorge­dondebtarefac­ingde­faults after sev­eral rounds of re­fi­nanc­ing and sev­eral years of in­ter­est ser­vic­ing. Ase­niorex­ec­u­tive of a Mum­bai-basedNBFC­con­firmed the sit­u­a­tion is bad, and there is noclar­ity on­when­nor­mal­cy­will re­turn. “The­cur­rentcri­sis is sig­nif­i­cant be­causethoughde­mon­eti­sa­tion was bad, de­vel­op­ers didn’t have a prob­lem rais­ing money. Last 20 days, there is no ac­cess to cap­i­tal for most firms,” said San­deep­Run­wal, di­rec­tor of Mum­bai-based Run­wal Group.

Ac­cord­ing to Amar Merani, manag­ing di­rec­tor and CEO, Xan­derFi­nancePvt. Ltd, NBFCs and HFCs have vir­tu­ally shut down­lend­ing­tode­vel­op­ersinthe past few weeks. “Many NBFCs and HFCs have been lend­ing to de­vel­op­ers by di­lut­ing credit stan­dard­sinthe­last4-5yearsjust 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 enough­cashre­sources­to­pro­vide liq­uid­ity to good de­vel­op­ers, wherever­it­makessense, Merani said. Hi­ranan­daniCom­mu­ni­ties chair­manand­di­rec­tor Ni­ran­jan 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. While­con­sol­i­da­tion in real es­tate is al­ready hap­pen­ing, it may­gain pace mor­erapidly now be­cause of the liq­uid­ity cri­sis,’ said Anuj Puri, chair­man, Anarock Prop­erty Con­sul­tants.

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