Banks will restructure builders’ loans on the basis of projects, says the RBI

During the current financial year, the RBI allowed lenders to restructure loans taken by developers at project-level if the debt was rated as normal and not overdue as of 1 March 2020, 3 bhk flat for sale in kharghar.

3 bhk flats on sale in kharghar, in a development that would help the cash-starved real estate developers of the country and delay-affected home buyers, the Reserve Bank of India (RBI) said that banks should restructure real estate companies’ loans at the level of the project rather than at the level of the borrower.

Banks will restructure builders' loans on the basis of projects, says the RBI

This suggests that default would not affect loan redemption for a builder at the corporate level. Because each real estate project will have its own set of risks, the RBI, while providing answers to a number of frequently asked questions about the COVID-19-related stressed asset resolution framework announced in August 2020, has directed banks to evaluate the risks associated with each project separately and, on that basis, to call for credit restructuring.

However, to be considered for restructuring, the proposal must meet some specific criteria. The banking regulator clarified that if the debt was categorised as standard and not overdue, as on March 1 , 2020, lenders could restructure loans taken over by a developer during the current financial year.

This assumes that financial institutions will only restructure loans from developers who have been consistently repaying their loans as of March 1 , 2020 and who have not been delinquent by more than 30 days. It also ensures that, under the COVID-19 stress fund, housing developments where defaults were made previous to the Coronavirus era would not be eligible to gain.

The specified thresholds for the financial parameters can be applied at project level only with regard to borrowers belonging to the real estate sector and having both residential and commercial real estate businesses, “the RBI said.”

These clauses, while providing loan restructuring stability to developers, would encourage building work to continue on housing projects that have been disrupted by the effects of the Coronavirus on real estate. As individual housing developments are considered independent legal bodies, corporate-level performance or defaults would not result in them missing out on the restructuring incentives of the loan.

Up until now, banks have been reluctant to finance even net-worth positive ventures that have been trapped due to last-mile funding problems due to loan defaults at the business stage. It remains, though, to be seen if this strategy is carried out by each lender.


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