Banks tighten screws on builders
The Economic Times, March 19, 2009, Page 1
Fresh Loans, Restructuring Come With Stricter Conditions
Sugata Ghosh & Rajesh Unnikrishnan MUMBAI
AMID a cash crunch in the property market, banks are setting tougher conditions on builders for fresh money and rolling over old loans. A large number of builders have requested banks for loan rollovers to beat the March-end blues and avert a default. And banks, having shut the doors on builders for months, are slowly releasing funds, but with strict loan covenants.
Some of the lenders have obtained development rights under which the bank will have the right to hire a contractor to complete the construction if the builder leaves the project midway. In some cases, they have the right to trade the floor space index (FSI) available with the borrower if there is a loan default.
The conditions are partly an outcome of the crash in real estate valuations. Wherever possible, lenders have hiked the asset cover—the security required for the loan. But in many cases, builders may not be in a position to pledge additional property for new loans or restructuring existing ones. In such loan exposures, banks derive some comfort from the special rights.
“They (the banks) are extra cautious now,” said Amber Maheshwari, director (investments) at real estate advisor DTZ said. “Though they have been following stringent norms while lending to developers by asking collateral securities and personal guarantees, their focus now is to avoid litigation and involvement of agencies like BIFR or DRT in case developers default,” he said.
The Economic Times, March 19, 2009, Page 1
Fresh Loans, Restructuring Come With Stricter Conditions
Sugata Ghosh & Rajesh Unnikrishnan MUMBAI
AMID a cash crunch in the property market, banks are setting tougher conditions on builders for fresh money and rolling over old loans. A large number of builders have requested banks for loan rollovers to beat the March-end blues and avert a default. And banks, having shut the doors on builders for months, are slowly releasing funds, but with strict loan covenants.
Some of the lenders have obtained development rights under which the bank will have the right to hire a contractor to complete the construction if the builder leaves the project midway. In some cases, they have the right to trade the floor space index (FSI) available with the borrower if there is a loan default.
The conditions are partly an outcome of the crash in real estate valuations. Wherever possible, lenders have hiked the asset cover—the security required for the loan. But in many cases, builders may not be in a position to pledge additional property for new loans or restructuring existing ones. In such loan exposures, banks derive some comfort from the special rights.
“They (the banks) are extra cautious now,” said Amber Maheshwari, director (investments) at real estate advisor DTZ said. “Though they have been following stringent norms while lending to developers by asking collateral securities and personal guarantees, their focus now is to avoid litigation and involvement of agencies like BIFR or DRT in case developers default,” he said.
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