Despite recent steps taken by the government to fix liquidity crisis, the realty sector is unlikely to get a major relief, as the Reserve Bank of India (RBI) has asked Non Banking Finance Companies (NBFCs) to scale down their exposure to the sector.In the Union Budget 2019-20, the government had said for purchase of high-rated pooled assets of financially-sound NBFCs amounting to Rs 1 trillion during this financial year, it will provide a one-time six months’ partial credit guarantee to public sector banks for their first loss of up to 10 per cent.
“The NBFC sector is still fragile. The RBI is keeping a close watch over it. There is already a warning to stay away from the sector as the risk of NPAs (non-performing assets) is still very high. So even healthy NBFCs will shy away from lending to this sector for some time,” an official from Department of Financial Services (DFS) told this publication.
The sentiment was already expressed by RBI Governor Shaktikanta Das, who had flagged his concerns regarding some housing finance companies during his media interaction last week. “We are monitoring the NBFCs very closely. There have been improvements but challenges still remain…We are constantly in touch with large lenders to NBFCs including housing finance companies where we see some signs of fragility,” the RBI governor pointed out.
Banks were already been very reluctant in lending to this sector and this is the reason majority of funding was coming from NBFCs and private equities. Post Infrastructure Leasing and Financial Services Ltd crisis, the real estate is bearing the brunt of the NBFC fund crunch. According to realty consultant JLL, total disbursals by NBFCs and housing finance companies to real estate developers declined by almost half from about Rs 52,000 crore in 2017-18 to an estimated Rs 27,000 crore in 2018-19.
According to the real estate industry, the RBI caution will further dry up liquidity for this sector, which was depending on NBFCs for almost 75 per cent of their requirements. “The industry has observed a vital decline in bank credit which, until recently, was considered to be the key channel for funding requirements.
This can be attributed to factors such as rise in non-performing assets, coupled with increasing losses in the real estate industry,” a Federation of Indian Chambers of Commerce & Industry report said.