RBI Eases Norms to give Boost to Commercial Real Estate Developers

In recent years, the Indian Real Estate sector has been struggling with a large unsold inventory and lack of funds. With banks becoming hesitant to offer loans, the developers are running out of credit and are forced to stall the projects. Both the residential and the commercial Real Estate have been badly affected by the credit crunch and the liquidity crisis. In a step to bring relief for the developers of commercial projects, RBI has eased the norms, allowing them to extend the date of commencement of commercial operations by another year. However, this would be valid only if the reason behind the delay is due to factors beyond the control of the developer.

This is seen as a welcome move by the Real Estate industry, and would help the developers complete their projects. Moreover, it would also help in easing the concern of banks about the projects turning into non-performing assets instead of the lucrative credit generators they can become when completed. Moreover, the banks will no longer need to downgrade the asset classification of these projects. This statement was passed by the RBI along with its 6th bi-monthly monetary policy statement of fiscal 2019 to 2020.

This is in line with the government’s efforts to revive the dwindling Real Estate sector in India. The industry has faced a major setback over the last few years among which the NBFC crisis played a major role. With the sales falling, the developers ran out of cash and many projects were stopped midway. The banks, followed by the other financing organizations, grew wary of the situation and gradually stopped giving loans which lead to a large accumulation of stalled projects.

However, the situation has now already started to improve. The government has taken a number of steps to ease the norms for the developers where the delay wasn’t due to their fault. Relief funds have also been announced to help stalled projects revive. It is expected that this intervention by the apex bank will improve sentiments and optimism in the commercial segment & help in opening of new markets to boost avenues of profitability for developers in this segment.