Explore sale of stalled home project loans to ARCs

Finance ministry's suggestion to government banks to push the sector

To push the housing sector the Union finance ministry wants public sector banks (PSBs) to explore the idea of selling their loans on stalled residential projects to Asset Reconstruction Companies (ARCs). Such a move would also contain the hit to banks’ balance sheets from the delayed projects.

A senior National Housing Bank (NHB) executive confirmed a discussion on the issue at a meeting PSB chiefs had with Finance Minister P Chidambaram in November. Among the points which came up were that restructuring norms for these housing projects be made similar to those for infrastructure. And, that banks could transfer such projects to ARCs against securitisation (against future cash flows of the projects) and let the ARCs complete these projects, a senior bank executive said. Banks could invest in ARCs to support the completion and there could be a tripartite deal between the banks, ARCs and builders.

According to the Indian Banks Association, the number of incomplete dwellings is about 100,000 in Delhi and 90,000 in Mumbai. Considerable delay in starting the projects, due to getting statutory clearances, had pushed project costs up almost 50 per cent. A PSB executive said the Confederation of Real Estate Developers Associations of India (Credai) had asked for better financing to complete all pending projects. NHB was working out steps in this regard, in consultation with Credai. According to the proposed arrangement on stalled projects, banks would get money upfront from an ARC, to be raised from investors in securities. The cash flows from sale of units in the housing projects would be used to pay the securities’ investors.

THE RECOMMENDATIONS

• Delink these loans from commercial realty portfolio
• Allow restructuring based on norms similar to infrastructure loans
• ARCs to be involved in completion of stalled projects

A head of a large ARC said some banks had approached it with proposals to buy out loans to stalled projects. “In some cases, the approach is on their initiative and in some it is motivated by promoters. The collateral may be strong. Still, we have to bear the cost of recovery and also have to generate profit. This is possible only when we buy the loans at a discounted price,” he said. Banks, on the other hand, want the full dues to be paid upfront by ARCs. Besides the issue of pricing of loans, it is not clear how the problems faced by delayed projects would get resolved just by transferring such debt, said an executive with one of th largest ARCs.