With projects on hand, and repayments up on face, banks not in a mood to lend to developers

As home buyers flee the market in the wake of high prices quoted by developers, banks have also started to close their doors on realtors. Developers across the city are looking worried as banks are delaying fresh debts, forcing developers to manage on their own.
A senior financial officer from a leading-listed Mumbai based realty company says, “The developers will have to manage the cash flows for next 2-3 months and expect moderate or no-growth at all in this market situation. The 1HCY11 will be painful for developers but from 2HCY11 we expect prices stabilising after a correction of 10-15%. At present the BPLR is around 12.5-13% and the risk weight-age is around 100-300 basis points, which makes our borrowing cost at 13.5-15.5%. But lending is not happening at all it is very slow earlier it used to take 2-3 months to get sanctions for loans but now the project files are just getting circulated for minimum 4-6 months. Honestly, in some areas developers have actually taken a cut of 10%. Also everyone will have to accept the fact that the madness rush that developers saw in 2009 that wouldn't be there.”

Bhaskar Chakraborty and Avi Mehta, institutional research analyst with IIFL, wrote in a note to clients on December 27, “Our channel checks indicate that fresh lending to real estate
developers by Public Sector Undertaking (PSU) banks is taking longer than in the past. With
the situation likely to continue till end-FY11, we see developers
with debt refinancing requirement in 2HFY11 increasingly
coming under pressure to cut prices to monetize inventory. We
expect to see selective price cuts in 4QFY11 in Mumbai
.”
S.Sridhar, CMD, Central Bank of India, had said in the sidelines of Credai Natcon event that project monitoring would be the key for project funding to developers.
Sridhar said, “At present we have 7% exposure to real estate and we are doing away with corporate loan we are providing only project specific loans that too we are monitoring them quite tightly and it is required as diversion of funds have taken place.”
A senior official from Corporation Bank said, “We are not sanctioning commercial loans to realty developers. We are very skeptical with regards to the sector.”
IDBI Bank and State Bank of India (SBI), both the large PSU's are becoming stringent in lending to realty players.
An official from SBI Bank said, “Now people are examining more examining seriously the viability of the projects. He tightening is to that extent. That said, if some one is fulfilling, say 70-75% of the requirement, there can be flexibility in the rest of it. There would be convulsions but the flow would go on. But the only thing that the financial instituions will have to see is that whether the projects will be one steam.”

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