RBI asked to ease norms for funding stuck projects

The Government of India is has advised the Reserve Bank of India to change guidelines to allow banks to provide last-mile funding to projects at an advanced stage of construction. The central bank, in its February circular, had said that any loan given to stalled projects would be considered a non-performing asset and will get restricted funding. 

The government has also proposed permitting funding for projects on last-in-first-out basis, where the investor who puts in money at the last stage to complete the stalled projects exits first.

Over 4.65 lakh units, worth over Rs 3,200 billion, are facing significant execution delays across major cities in the country due to sales slowdown, cash crunch faced by developers and issues related to project approvals. 

As many as 1,687 projects, comprising 4,65,555 units with a saleable area of nearly 600 million sq ft, are significantly behind delivery schedule. The delays in these projects range from 2-8 years and there is no certainty when these would be completed.

A holistic approach is needed to solve the problem of the affected home buyers who are suffering because of stalled projects where the builders are unable to navigate forward due to constraints. Partial funding can be provided for these projects so that these can be completed. 

Stressed asset funds are a way to bridge the gap in the interim to navigate through the current mess.

Although the markets are facing significant execution delays, the government expects reputed developers to perform well. Projects that are completed or are nearing completion attract the maximum buyers as these seem to be the most risk averse in the eyes of the buyers. 

— S C Dhall