Guarantee corpus for realty lending in budget

Track2Realty Exclusive

By: Ravi Sinha

The cash strapped realty companies can have a breather in budget for 2011-12 as the Finance Minister is expected to make announcement of a guarantee corpus for banks on realty lending. Track2Realty has learnt that the banks will get this guarantee corpus of Rs. 1000 crore to lend for housing projects.

In the wake of realty sector increasingly being seen with suspicion following scams, the government’s plan can give a lifeline to the real estate sector which has an estimated debt of about Rs. 75,000 crore, of which 25,000 crore is coming up for repayment in the current fiscal.

Real estate sector has been hit by scams and allegations of siphoning of funds raised through loans for housing projects. But now with this proposed guarantee corpus, banks too can take recourse to the fund if realty companies default on their loans.

Requesting anonymity a government source told Track2Realty that the modalities of the fund are still being worked out and the state owned housing refinance agency, National Housing Bank (NHB) will act as the nodal authority for the monitoring of the fund.

The move would ease financing into the sector since banks have become very conservative in extending credit to the realty in the wake of ineligible companies receiving telecom spectrum at arbitrary and throwaway prices. Banks say they would rather prefer lending funds to stable and clean brick-mortar sectors like steel, cement, textiles and manufacturing than to real estate sector.

“The objective of the proposed fund is to put banks at ease by offering a kind of guarantee that they can dip into this pool if loans turn bad,” said the source.