The Reserve Bank of India (RBI) on Friday extended the benefit of restructuring some commercial real estate loans (CRE) to non-bank lenders. As a result of the regulatory move, NBFCs will now be able to restructure loans to real estate projects where the date of commencement of commercial operations (DCCO) has been delayed for reasons beyond the promoter’s control without classifying them as bad loans for another year.
“In terms of the extant guidelines for banks, the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring,” RBI governor Shaktikanta Das said, adding: “It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector.”
According to sector experts, NBFCs’ outstanding credit to the commercial real estate stood at Rs 1.29 lakh crore as on September 30, 2019. Restructuring has been one of the prime demands of NBFCs with a significant exposure to real estate. Earlier this week, Housing Development Finance Corporation (HDFC) chairman Deepak Parekh had argued in favour of a one-time restructuring for stressed real estate projects. “That would offer a better way to renegotiate timelines of repayment than the legal complications of triggering force majeure clauses,” Parekh had said.
However, Friday’s announcement left NBFCs as well as analysts unsatisfied. NBFCs had been expecting a more direct instruction from the central bank to banks to offer them the three-month loan moratorium. To that extent, they were disappointed. Umesh Revankar, MD & CEO, Shriram Transport Finance, said: “We would appreciate if banks reciprocate positively to NBFCs’ request on moratorium to manage cash flow smoothly.”
Experts tracking the banking sector interpreted the breather on asset classification as just another instance of kicking the can down the road. Abizer Diwanji, partner and leader-financial services, EY India, said: “The extension of moratorium by one year for CRE loans is a welcome move but the worry is that compounding will only delay the problem.”
Nonetheless, the move will provide some succour to the stressed realty sector at a time when their cash flows are bound to be strained. Shishir Baijal, CMD, Knight Frank India, said: “Considering the lockdown and the impact on migrant labour workforce, there will be an inevitable delay in construction activity in real estate projects.” He added that the forbearance on asset classification for NBFC loans to the commercial real estate will ease the pressure on developers.
