The recent decision by the Reserve Bank of India (RBI) to allow additional housing loans for stalled real estate projects to be treated as standard credit is a significant move in the Indian real estate sector. Here’s a detailed analysis based on information from various sources:
- RBI’s Decision: The RBI has informed banks that they can fund stalled real estate projects after obtaining permission. This decision is crucial for reviving such projects under the government’s Special Window for Affordable and MidIncome Housing (SWAMIH) initiative. The classification of these additional loans as standard credit is expected to encourage banks to lend more freely to these projects.
- Impact on Housing Units: The Indian Banks’ Association (IBA) has estimated that approximately 4.12 lakh stressed dwelling units, involving a staggering ₹4.08 lakh crore, are impacted across various stalled real estate projects. A significant portion of these, about 2.40 lakh units, are located in the National Capital Region (NCR). The resolution of 75% of these stressed units could add around three lakh units to the housing sector, thereby addressing a critical need for housing in the country.
- SWAMIH Fund: The SWAMIH fund, sponsored by the Finance Ministry and managed by SBICAP Ventures Ltd, is pivotal in this initiative. It stands out as India’s largest social impact fund specifically formed for completing stressed and stalled residential projects. The fund, with no comparable peer in India or global markets, has raised ₹15,530 crore to provide priority debt financing for the completion of stressed, brownfield, and RERA-registered residential projects in the affordable and mid-income housing category. As of March, SWAMIH had provided final approval to about 130 projects, sanctioning over ₹12,000 crore. Since its inception in 2019, the fund has completed 20,557 homes and aims to complete over 81,000 homes in the next three years across 30 tier 1 and 2 cities.
- Committee Findings and Approach: A 14-member committee led by former NITI Aayog CEO Amitabh Kant was formed to examine stalled real estate projects and recommend solutions. The committee identified “lack of financial viability” as the main reason for the stress in these projects, leading to cost overruns and delays. The committee’s approach is twofold: first, to provide funds to developers for stalled projects through SWAMIH and allow banks to invest following RBI’s permission; second, to make provisions for individuals whose loans are stuck to classify these loans as standard assets.
The RBI’s decision to treat additional loans for stalled real estate projects as standard credit, in conjunction with the efforts of SWAMIH and the recommendations of the committee, represents a comprehensive strategy to revive the real estate sector in India. This approach not only aims to complete stalled projects but also facilitates economic growth by enabling the completion of a large number of housing units, which is crucial in addressing the housing needs of the middle and lower-middle-class population.