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Real Estate Revival through Priority Sector Classification

Real Estate Revival through Priority Sector Classification

Finally, the long-pending hope of revival push from RBI (Reserve Bank of India) has been announced and real estate sector now could see light at the end of the tunnel. Recently, RBI after reviewing the situation of the real estate sector amidst the COVID-19 outbreak has decided to extend the priority sector classification for bank loans to NBFCs (Non-Banking Financial Companies) and HFCs (Housing Finance Companies) for on-lending for FY 2020-21.

The real estate sector went through a torrid patch during the past two years witnessing prolonged slump and pessimistic buyers’ sentiments. It was on the path of a revival riding on government bailout packages and an optimistic response from homebuyers starting from the fag end of 2019. Although the current COVID-19 pandemic has dampened the real estate market, the priority sector classification will help it witness a faster revival.

Earlier, where banks have stopped lending to NBFCs and HFCs due to unprecedented rise in NPAs (Non-Performing Assets) and rampant frauds by developers along with some financial institutions, priority sector classification was a good booster towards revival and upliftment of investors and home buyer’s sentiments in both short and long term. Around 70% of funding for real estate construction of projects is coming through the NBFCs route.

The priority sector classification gesture will help boost credit disbursement in the housing sector. The lending limit for the borrower has been upgraded from INR 10 lakh to INR 20 lakh per borrower. In order to control bad loans, the on-lending model banks can classify only the fresh loans sanctioned by NBFCs upon borrowing from banks.

Through the availability of credit to all registered NBFCs and HFCs under this recent on-lending model, banks can provide a maximum 5% of the total bank’s priority sector lending capacity.

The recent steps taken by RBI and the government like loan restructuring extension by one year, set up of INR 25,000 crore real estate alternate investment fund coupled with providing priority sector classification for borrowing from banks will help boost the overall real estate market in the near term.

 

 

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