Banks Choke Credit to Real Estate Sector Amid 2G Spectrum Scam Allegations

As the already cash-starved real estate sector grapples with a total estimated debt of about R80,000 crore, the alleged involvement of major players Unitech and DB Realty in the 2G spectrum scam has led to banks quietly deciding to choke credit to the sector. This move is expected to delay the completion of ongoing housing projects and may lead to a decline in new project announcements. The real estate sector is facing a significant challenge in meeting its debt repayment obligations, with over R20,000 crore coming up for repayment in the current fiscal.

Key Takeaways:

• Banks have decided to reduce credit to the real estate sector due to the alleged involvement of major players in the 2G spectrum scam.
• The real estate sector has a total estimated debt of about R80,000 crore, with over R20,000 crore to be repaid in the current fiscal.
• The Reserve Bank of India has increased the risk weight for residential housing loans of R75 lakh and above to 125% to rein in rising real estate prices.
• Industry experts believe that banks have already been conservative in lending to the real estate sector for the last few months.
• The alleged involvement in the 2G spectrum scam may have complexities, but experts play down its major impact on the real estate sector.
• Companies in the sector would now have to scout for fresh sources for financing due to the tightened credit conditions.
• The payment in residential projects is usually construction-linked, where cash is paid at each stage of development, but the flow may thin down if the project gets choked in the middle.

Statistics:

• R80,000 crore: The total estimated debt of the real estate sector.
• R20,000 crore: The amount of debt that is expected to be repaid by the real estate sector in the current fiscal.
• 125%: The risk weight increased by the Reserve Bank of India for residential housing loans of R75 lakh and above.
• R75 lakh: The amount above which residential housing loans are considered high-risk by the Reserve Bank of India.

Sources:

• "We will go slow in lending to the real estate sector," the chairman of a public sector bank told Hindustan Times on the condition of anonymity.
• Senior bankers who did not wish to be identified said banks have already become more "conservative" in lending to the realty sector with allegations that ineligible companies were awarded scarce telecom spectrum at throwaway prices.
• Published by HT Syndication with permission from Hindustan Times.