Banks tightening the screws on builders
Market sources said leading banks now lend to only credible builders for select projects, but have turned off the tap for most others in the construction sector. Money has suddenly stopped flowing into Mumbai real estate sector with banks and financial institutions tightening the screws on builders. By March 2011, Mumbai builders alone are scheduled to return roughly Rs 6,000 crore to banks.
The RBI directed lending institutions to limit their exposure to real estate after the LIC Housing scam last November. Bankers said that most of the loans to builders have to be repaid before the end of March, before banks close their books. This is because lenders do not want their balance sheet to reveal their exposure to real estate, which RBI considers a sensitive sector.
In the past two months, cash-strapped developers have flocked to private money lenders who provide short-term loans at exorbitant interest rates of between 24% and 30% a year. Banks charge builders between 13% and 15% interest a year. Market sources said some leading developers in Mumbai have loan exposures of Rs 3,000-4,000 crore each. A south Mumbai builder is believed to have approached a Kutchi investor last month when a public sector bank refused to reschedule his loan. Market sources said that the investor charged the builder 36% interest.
In mid-2008, when financial institutions and banks restricted loans to developers during the global meltdown, moneylenders primarily belonging to the Sindhi, Marwari and Kutchi communities stepped in. A suburban developer said these moneylenders are back because banks have halved their funding in the past one month.
Read more: The Times of India
Credible builders, LIC Housing scam, LIC Loan scam, Mumbai Builders, Mumbai real estate sector, Real estate in India
