NBFC Fund Crunch Begins to Hit Real Estate Sector

Home buyers and real estate developers are facing a fund crisis, despite RBI’s recent measures to increase bank credit to non-banking finance companies (NBFCs) and housing finance companies (HFCs).

The problem is so acute that in several cases, sanctioned home loans are not being disbursed and funds committed earlier under construction-linked home loan schemes are not being released by several players.

The cash crunch has also pushed up home loan interest rates by 50-75 basis points (100 basis points make a percentage point). For developers, the increase can be as much as 300 basis points, said Pankaj Goel, a director in Express Builders, a Delhi NCR-based outfit. NBFCs are keen to transfer their home loan accounts to banks for pre-payments, which help them generate cash.

“The condition is so difficult that no NBFC is ready to write a large cheque of Rs 30-40 crore. Even limits on credit lines given by them to firms have been lowered. For small retail loans also, they are not sanctioning fresh loans and for loans sanctioned earlier, they are refusing to give on one or other count,” said ASK Financial Holding CEO Manish Yadav.

The cash crunch in the system was triggered by a series of repayment defaults by IL&FS, resulting in mutual funds and other financial players virtually freezing investments in the commercial paper (CP) market, a key source of funding for NBFCs. Ratings agency Crisil estimated that funding for nearly 15% of NBFC business of Rs 22 lakh crore is met through the CP market. NBFCs raised around 10% of their total loan book size of Rs 6 lakh crore through CPs, which are short-term instruments to raise loans.

An estimated Rs 50,000 crore of CPs are due for redemption, creating fresh fears in the market. “We are not undertaking more than 60-70% of the business that we normally do due to the fund crunch. The problem is more intense for smaller players,” said the head of a financial services conglomerate that also runs a large NBFC.

With funds drying up, several smaller NBFCs are trying to liquidate their loan portfolios to raise funds. “Right now most of them are not doing lending business,” said Yadav.

Most finance companies are cautious in lending as resource mobilization is getting difficult given the current liquidity conditions, added India Infoline Finance CEO Monu Ratra.

“When you are not getting committed funds from banks, how do you disburse money?” said Deepak Joshi, vice-chairperson of ManiBhavanam, a new HFC.

Source : ET Realty