NBFCs pull the plug on credit
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.