Leading market players such as ICICI, State Bank of India and Yes Bank are seeking additional pledge on housing loan disbursement to the realty developers. In some lending agreements banks asked the borrowers to avail the loan against their personal property mortgage. Banks are worried that the new real estate law might impact their existing set of home loan terms and conditions.
What’s collateral?
In lending agreements the term ‘collateral’ is referred as secure lending. It’s an asset-based lending. Under any circumstance if the borrower defaults the agreement, in terms of repayment of principal or interests, bank has the authority to seize the respective property. Collateral must be equal or greater than the loan or credit extension amount.
What RERA suggests-
As per the revised law of Real Estate (Regulation and Development) Act, 2016 (RERA), a developer should maintain 70% money received from the home buyers in a separate (escrow) account. This would allocate only 30% of the sales proceeds. Earlier on, builders used to jumble this entire collected amount for other project development. RERA will finally uproot every tangle from the inception.
Now banks are considering that following this strict regulation might lead to violation of RBI preset provision rules. In one of such cases, a reputed Mumbai-based builder, who borrowed certain amount through a consortium of banks and other non-banking financial companies (NBFCs), might put in the soup. The developer had pledged his upcoming G+5 residential project as collateral and the lenders had full control of sales receipts. After RERA, additional collateral option in a project has become extinct.
“Under RERA regime a developer needs to put up his personal belongings/immovable asset as collateral rather than any of his real estate ventures. Definitely, he will be asked to give his personal guarantee, - said West Bengal RERA and realty expert Mr. Mahesh Somani.
What banks have been directed to?
The authority mailed ICICI, SBI and Yes Bank. As per the latest update banks didn’t respond to the same. Speaking on the same banks said that it’s too early to opine on this matter. Quoting the comments of the CEO of HDFC, “30% of the sales proceeds over which lenders have right, is only towards the principal repayment by the developer while interest is to be serviced out of the balance 70%. Even though lenders had access to 100% of the sales proceeds prior to RERA, they hardly used the entire sum."
The leading property portal in Kolkata banks will soon modify their existing norms as per RERA stricture. Yet, banks don’t want to reveal their policy. Mortgage lenders are worried if their projects get stuck under RERA. Lenders including NBFC and PE firms are thinking of ways to defend this unexpected risk. There are many instances where banks have invested with a buyback security or an option of converting debt to equity and approving part of the project. In a bid to import transparency to the realty sector RERA is going to make loan conditions difficult, expected by the market trackers.
LNN (Liyans News Network)
What’s collateral?
In lending agreements the term ‘collateral’ is referred as secure lending. It’s an asset-based lending. Under any circumstance if the borrower defaults the agreement, in terms of repayment of principal or interests, bank has the authority to seize the respective property. Collateral must be equal or greater than the loan or credit extension amount.
What RERA suggests-
As per the revised law of Real Estate (Regulation and Development) Act, 2016 (RERA), a developer should maintain 70% money received from the home buyers in a separate (escrow) account. This would allocate only 30% of the sales proceeds. Earlier on, builders used to jumble this entire collected amount for other project development. RERA will finally uproot every tangle from the inception.
Now banks are considering that following this strict regulation might lead to violation of RBI preset provision rules. In one of such cases, a reputed Mumbai-based builder, who borrowed certain amount through a consortium of banks and other non-banking financial companies (NBFCs), might put in the soup. The developer had pledged his upcoming G+5 residential project as collateral and the lenders had full control of sales receipts. After RERA, additional collateral option in a project has become extinct.
“Under RERA regime a developer needs to put up his personal belongings/immovable asset as collateral rather than any of his real estate ventures. Definitely, he will be asked to give his personal guarantee, - said West Bengal RERA and realty expert Mr. Mahesh Somani.
What banks have been directed to?
The authority mailed ICICI, SBI and Yes Bank. As per the latest update banks didn’t respond to the same. Speaking on the same banks said that it’s too early to opine on this matter. Quoting the comments of the CEO of HDFC, “30% of the sales proceeds over which lenders have right, is only towards the principal repayment by the developer while interest is to be serviced out of the balance 70%. Even though lenders had access to 100% of the sales proceeds prior to RERA, they hardly used the entire sum."
The leading property portal in Kolkata banks will soon modify their existing norms as per RERA stricture. Yet, banks don’t want to reveal their policy. Mortgage lenders are worried if their projects get stuck under RERA. Lenders including NBFC and PE firms are thinking of ways to defend this unexpected risk. There are many instances where banks have invested with a buyback security or an option of converting debt to equity and approving part of the project. In a bid to import transparency to the realty sector RERA is going to make loan conditions difficult, expected by the market trackers.
LNN (Liyans News Network)
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