Hudco Breather For 3 Up Development Authorities
The Housing and Urban Development Corporation (Hudco) has rolled over Rs 376.71 crore owed to it by the Allahabad, Meerut and Ghaziabad development authorities.
As per Hudcos new rehabilitation package, these authorities will be out of default once they fulfil their obligations under the new package. The Uttar Pradesh government has agreed to abide by Hudcos rehabilitation package.
Of the Rs 376.71 crore owed to Hudco, Rs 125.09 crore is the principal amount and Rs 251.62 crore is the pending interest payment. The loans were given under the Urban Infrastructure Finance scheme.
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Earlier, Hudco had invoked the Uttar Pradesh governments guarantees to recover these loans. It had also filed civil suits against the authorities for defaulting on the loan repayments.
These recovery steps have been taken by Hudco following the imposition of prudential accounting standards on housing finance companies by the National Housing Bank (NHB).
Under the new accounting standards, revenue can be shown only when it is actually realised and not on an accrual basis. As a result of this, Hudcos income and net profits have registered a decline. Following these new standards, the net profit figure has declined from Rs 100 crore in 1994-95 to Rs 83 crore in 1995-96.
So far, Hudco has not made any provision on loan defaults by urban development authorities as these are secured and are backed by guarantees from state governments or nationalised banks.
However, despite the assets being secured, such defaults tend to create cash flow problems leading to asset-liability mismatches. As a result, a greater amount of refinancing has to be resorted to.
Hudco has been forced to refinance some of its low-cost liabilities in view of the repayment defaults by state government undertakings.
To avoid defaults, Hudco has been asking state institutions, municipalities and urban development authorities to open escrow accounts as a pre-condition to sanctioning fresh loans. The revenue streams of these organisations would be credited to these accounts.