With the recent lockdown extension, the economy, the real estate sector,  and other financial institutions are facing issues with supply chain, liquidity, and financing challenges. Many developers are unable to receive permits, and face delays in construction activities, stoppages, and potentially declining return prices. In a move to reconstitute liquidity into the economy and strengthen the economic downturn under the COVID-19 crisis, Reserve Bank of India (RBI) recently announced several measures that will boost the real estate market, in addition to easing the liquidity issues of builders, banks, NBFCs, and other financial intermediaries.

RBI Measures - Major Relief to Cash-Starved Builders

The RBI has allocated Rs 10,000 crore to the National Housing Bank, which will help provide funding to HFCs and effectively offer considerable relief in COVID-19 times for builders in real estate who are facing liquidity issues. Also, a fund of Rs 50,000 crore will provide incremental liquidity to NBFCs, MFIs, which could be used for more loans to the real estate construction sector.  RBI also reduced the reverse repo rates to 3.75 percent by 25 bps would encourage banks to lend more.

The decision by the RBI is likely to help developers focus on completing projects and ease the worries of banks over projects that transform into non-performing assets. This is a significant step and will bring the much-needed relief from the liquidity perspective to the cash-starved real estate market, and both developers and housing finance firms (HFCs). It will also ease the time for developers to sustain and handle cash flows, and also complete many stalled projects.

As part of its sixth bi-monthly monetary policy statement for fiscal 2019-20, the central bank said it would allow another year to extend the start date of commercial operations (DCCO) of commercial real estate project loans, delayed for reasons beyond the control of the promoters. RBI's policy announcement is thoughtful and encouraging, as it will further improve the credit flow to the residential realty sector under stress. RBI's decision would be key to helping developers get much-needed relief.

The government's measures provide a sense of relief from the liquidity perspective for the real estate sector, developers, and HFCs. It will also ease the time to handle and track cash flows for cash-strapped developers and also help them complete stalled projects.

BY: Shailaja K