July 05, 2021

CREDAI Bengal Daily News Update | 05.07.21

Wary of Risks, Unwilling to Lend: Measures like the moratorium

make banks wary of lending to high-risk sectors

The banking system has now been in a surplus since June 2019, or for two full years. Over this

time, banks have lent little, parking the surplus in risk-free government bonds or in the RBI’s

reverse-repo window. The Financial Stability Report (FSR) draws attention to the fact that their

investments in G-Secs are at the highest levels since March 2010. This leaves them vulnerable to

yield movements, more so if they don’t intend to hang on to the bonds till these mature. But this

kind of lazy banking seems to suit them, so reluctant are they to take on risks. Nowhere is this

more evident than in the wholesale sector—companies and businesses—where credit growth in

FY21 was a miserable 0.7%. Of the exposure to this segment, a fair part comprised loans to public

sector companies that are safer. Moreover, the MSMEs were able to access funds, thanks to the

government’s ECLGS. Banks largely preferred to lend to individuals where the growth was a

respectable 11.3% In all, bank credit rose 5.4% in FY21, the lowest in the last four years.

However, that doesn’t seem to have hurt their revenues; on the contrary, their performance in

FY21 was the best in many years. The net interest income for a select sample of 26 banks (public

and private) jumped 22.4% in FY21, the biggest increase in about ten years. With access to cheap

deposits—that left savers with a negative real rate of interest—and yields that barely see a

downward trend, banks were able to make handsome spreads. Indeed, a pandemic year saw their

operating (pre-provisioning) profits climb nearly 22%, again, the highest growth in a decade. The

smart increase in the bottom line, was, of course, helped by the considerable drop in provisions.

Even in the current year, the FSR notes, the rise in exposure to companies (86% of loans to

wholesale borrowers) has decelerated sequentially. RBI believes the significantly lower rates on

market instruments may have enabled private firms to reduce their banking sector exposure. If

banks continue to remain as risk-averse as they are today and unwilling to lend to companies—

Newspaper/ Online Financial Express (Online)

Date July 05, 2021

Link https://www.financialexpress.com/opinion/wary-of-risks-unwilling-to-lend-measures-like-the-moratorium-make-banks-wary-of-lending-to-high-risk-sectors/2283738/

other than those that are highly rated—a whole segment of businesses will be starved for credit.

Given the risk weights for some retail loans—like home loans—are smaller, because they are

better collateralised, the lower cost of capital for these exposures will persuade banks to lend

increasingly more to individuals. They will eschew assets even with the slightest risk.

Changes in policy—the six-month moratorium given to borrowers last year—also make banks

more wary of exposures to high-risk segments like MSMEs. Had it not been for the ECLGS, this

segment would not have been able to access bank loans last year.

While the circumstances were, no doubt, extraordinary, the moratorium was perhaps not the best

way to deal with borrowers’ problems. Banks should have been given the option to recast or

restructure the debt, case by case. If the loan losses are now expected to be lower than those

anticipated earlier—FSR estimates a level of sub-10% by March 2022—it is because banks have

stayed away from the slightest risk. Unless bankers are protected from the investigative agencies

and regulatory changes, they will continue to play it safe.

_____________________________________________________________________

Small business loans may spell big trouble for banks this fiscal

The increase in delinquencies has been the highest for unsecured SME loans as of May

To be sure, access to cheaper funds and even restructuring are seen as relief measures for MSME

borrowers

Lenders in India may need to brace for a resurgence in delinquencies from their vulnerable small

business loans portfolio in FY22. Micro, small and medium enterprise (MSME) has been a

segment rife with problems when it comes to asset quality. Small borrowers are also the most

vulnerable to crises and economic shocks given their fragile balance sheets.

The situation during the current pandemic is perhaps even more dire and less visible than in the

earlier troubling episodes. The Reserve Bank of India’s (RBI’s) latest financial stability report

gives enough reasons for banks to increase their guard for MSME loans. Stress among MSMEs

was increasing even before the pandemic. Delinquencies have remained elevated with the bad

loan ratio at 16% for public sector banks as of March.

It should be noted that the delinquency ratio has risen despite forbearance support. Among

lenders, public sector banks and non-bank financial companies could be holding maximum

stressed loans. Analysts at rating agency Icra Ltd said repayment collections for non-bank lenders

dipped in May owing to restrictions in the wake of the second wave of the pandemic. A slight

improvement was witnessed in June.

Big troubles

“Due to the absence of relief measures, such as the moratorium provided in the previous year, the

cash flows of businesses and income-generation ability of borrowers has been impacted

significantly during the second wave, thereby affecting their repayment capability across asset

classes," the Icra analysts wrote in a note.

Newspaper/ Online Live Mint (Online)

Date July 05, 2021

Link https://www.livemint.com/market/mark-to-market/small-business-loans-may-spell-big-trouble-for-lenders-this-fiscal-year-11625413938060.html

The rise in delinquencies has been the highest for unsecured small and medium enterprises loans

as of May, they added. The story for special mention accounts (SMAs) also remains the same.

These accounts show early signs of trouble on banks’ loan books, wherein repayments are

overdue for more than a month. Public sector banks showed a sharp increase in such accounts in

FY21. In more than 12% of the MSME loan book of public sector lenders, repayments were

overdue beyond a month. For private sector banks, this ratio was 3.2%, an increase from 2.6% a

year ago.

The RBI report also warned that these firms are leveraged, holding high levels of debt. The

emergency credit line guarantee scheme (ECLGS) has also enabled small firms to borrow more.

Ergo, business disruptions, if any, could hurt small firms disproportionately.

In this light, the spectre of a third wave becomes more threatening. To be sure, access to cheaper

funds and even restructuring are reliefs to MSME borrowers. Analysts expect restructuring to

increase in the coming quarters. But the health of these firms hinge mostly on the pick-up in the

economy through increased demand. The second wave and a potential third wave have cast a

shadow of uncertainty over them. India’s small firms are certainly not an outlier when compared

to peers in other countries.

The pandemic has hit small business even in advanced economies. But India compared poorly

with others when it comes to delinquencies. The weighted average default rate for Indian

corporate borrowers has risen to be the highest when compared with European counterparts from

pre-pandemic levels, the report showed. The probability of delinquencies rising is also high

among Indian companies.

The government and the central bank’s measures have lent support to small borrowers. But

whether their balance sheets have strengthened or weakened further

____________________________________________________________________

Unsold housing inventory dips to a 24-month low

RBI’s FSR attributes sales to pent-up demand, stamp duty cuts, interest rate drop

In an indication that the worst may be over for the retail real-estate sector, the level of unsold

housing inventory has hit a 24-month low. According to RBI data, unsold inventory levels have

come down to about 7 lakh units on March 31, 2021, from about 8.5 lakh units in FY20 first

quarter.

“The slowdown in the housing market witnessed even before the onset of the pandemic bottomed

out in the first quarter of 2020-21. During the third and fourth quarter of 2020-21, residential

housing property registration and sales across major cities exceeded their pre-pandemic average

levels. This was aided by stamp duty cuts by some States; unmet demand during the Covid-19

related restrictions in H1:2020-21; and moderation in interest rates,” said the Reserve Bank’s

latest Financial Stability Report.

Though the RBI data is up to March 31, reports by private real estate players suggest that the

momentum has continued in subsequent months. A recent report by property consultant Anarock

showed that housing sales in the second quarter of calendar 2021 stood at around 24,570 units

across the top seven cities, increasing by 93 per cent annually.

“Restrictions are now easing and the vaccination drive is gathering momentum. We, therefore,

anticipate residential demand to see steady growth in the upcoming quarter. The previously-noted

structural shift in housing demand continues — many homeowners seek to upgrade to larger

homes and the previously purchase-averse millennials remain very active property buyers,” Anuj

Puri, Chairman, Anarock Property Consultants, wrote in a recent report.

Newspaper/ Online The Hindu Businessline (Online)

Date July 05, 2021

Link https://www.thehindubusinessline.com/news/real-estate/unsold-housing-inventory-dips-to-a-24-month-low/article35137469.ece

Even with lower inventory, it could take more than 45 months to clear the backlog compared to

about 27 months two years ago, said CARE Ratings.

“The pandemic has impacted the livelihood of several households in terms of expenditure

incurred on treatment and preventive medication. Focus on savings rather than investing in big-

ticket property will work towards moderating demand. There was already an overhang of debt

burden in terms of the moratorium that was provided last year. Therefore, it will be interesting to

see how demand plays out, especially in the mid-segment,” it said.

Rising commodity prices

CARE ratings also flagged rising commodity prices that could put pressure on the cost of the

project, in turn, impacting prices and buying. The All-India House Price Index (HPI) increased

2.7 per cent in the fourth quarter of 2020-21 vis-a-vis 3.9 per cent growth a year ago. On a

sequential basis, the all-India HPI growth moderated to 0.2 per cent in the Q4 of FY21.

“A concern here is the spike in global commodity prices which has been witnessed even in India.

Cost of construction has gone up as the price of steel, cement, copper, aluminium products and

sanitary wares have been increasing. This will tend to put pressure on the cost of the project which

can pressurise prices,” said Care Ratings.

________________________________________________________

About 18% of new projects in major cities are coming up in non-

TP areas: Gujarat RERA

In an insightful document last week, Gujarat’s Real Estate Regulatory Authority

(GujRERA) office claimed that 18% of all new building projects in Ahmedabad, Surat,

Vadodara and Rajkot are forced to come up in areas where there are no town planning

schemes (TP).

In an insightful document last week, Gujarat’s Real Estate Regulatory Authority (GujRERA)

office claimed that 18% of all new building projects in

Ahmedabad, Surat, Vadodara and Rajkot are forced to come up in areas where there are no town

planning schemes (TP).

In tier-2 and tier-3 Gujarat cities like Ankleshwar, Bharuch, Junagadh and Navasari nearly 60%

of newer developments are in non-TP areas. The non-TP areas lack planned network or roads,

infrastructure and amenities.

“In Ahmedabad, only 5% to 7% new housing and commercial projects are coming up in non-TP

areas when compared to other three tier-1 cities,” said a senior Ahmedabad Municipal

Newspaper/ Online ET Realty (Online)

Date July 05, 2021

Link https://realty.economictimes.indiatimes.com/news/industry/about-18-of-new-projects-in-major-cities-are-coming-up-in-non-tp-areas-gujarat-rera/84132445

Corporation (AMC) official.

The non-statutory document has suggested reforms in the existing town planning department and

further flags that development demand in Gujarat’s cities has often outpaced the supply of

planned and serviced land provided through TP scheme mechanism.

GujRERA had teamed up with department of urban development and urban planning consultants

to come up with three non-statutory manuals — Town planning schemes, Development plans and

Local Area Plans (LAP) — and have uploaded them on their website. This is the first time that

such an exercise has been carried out in the state.

Among key recommendations, to reduce delays ahead of an intention of TP scheme, are including

public consultation process where land owners and beneficiary are consulted before freezing land

records with shape, size and ownership boundary.

The concept paper has also added a stage for preparation of vision while preparing draft TP

scheme. Among other major recommendations are that the state government appoint an expert

review committee (ERC) which shall review and recommend approval of TP schemes submitted

to the government at different stages.

________________________________________________________________

Only 1 lakh out of 25 lakh construction workers vaccinated in

Karnataka

There are 25 lakh registered construction workers in Karnataka, with about 25 per cent

employed in Bengaluru, according to Errol Fernandes, the vicepresident of the

Confederation of Real Estate Developers’ Association of India (CREDAI), Bengaluru.

After the disruptions caused by Covid-19 lockdowns, the slow vaccination process is adding to

the worries of real estate developers, who fear that a prolonged staff shortage may hit project

timelines. For health safety reasons, many builders are calling to sites only those workers who

have taken at least one dose of the vaccine. The number of such workers is not big currently.

There are 25 lakh registered construction workers in Karnataka, with about 25 per cent employed

in Bengaluru, according to Errol Fernandes, the vicepresident of the Confederation of Real Estate

Developers’ Association of India (CREDAI), Bengaluru. “Out of these, around 1 lakh have been

vaccinated. Besides, there are thousands of unregistered labourers,” he added.

A city-based builder said that the realty industry was facing the twin challenge of vaccine

shortage and hesitancy among staff. “If this continues, projects will be delayed by several

months,” he added.

At the all-India level, CREDAI has decided to vaccinate around 2.5 crore labourers working for

13,000 developers across 220 cities. About 250 active projects have been identified in Bengaluru

and a list of more than 40,000 labourers has been prepared. These labourers will be given jabs

with the help of the government. “We have lists of people employed by 560 developers that are

members of CREDAI Karnataka. We also plan to bring more unregistered workers into the fold

once the registration process is simplified. If we do not get immediate support from the

government (on the vaccination front), we will tie up with private hospitals,” said Fernandes.

Priyadarshi Mishra, founder and CEO of Design and Construct, said that the industry was

grappling with labour migration, reduced supply of raw materials and project delays, and faster

vaccination was the only way to get things back on track. “We arranged vaccination drives for

our employees at office locations across the country with the help of medical partners. All our

employees are vaccinated now,” Mishra said.

CN Govindaraju, chairman and managing director of Vaishnavi Group, also said that vaccination

was the only way to beat the pandemic and a speedier programme would help restore normalcy

by the end of the year. “We decided to organise a vaccination camp for all our employees and

various stakeholders in collaboration with Manipal Hospital Group,” he added.

Newspaper/ Online ET Realty (Online)

Date July 04, 2021

Link https://realty.economictimes.indiatimes.com/news/industry/only-1-lakh-out-of-25-lakh-construction-workers-vaccinated-in-karnataka/84111635

Prashanth Reddy, managing director of Fundermax India, is hoping for normalcy to return soon.

“Our company has encouraged vaccination by offering to reimburse the cost of jabs

for construction workers and their immediate family members. In other measures, the office space

and warehouse facility are regularly sanitised to ensure the safety of the staff,” he added.

________________________________________________________________

Circle rates may go up in Noida

The local administration will soon begin an exercise to evaluate the prevailing land rates in

the three revenue sub-divisions of the district — Dadri, Sadar and Jewar. Circle rates are

updated every year, usually on August 1.

Be ready to shell out more money for buying properties in Gautam Budh Nagar as the

administration could hike circle rates in some pockets of the district after a gap of four years.

TOI has learnt that the local administration will soon begin an exercise to evaluate the prevailing

land rates in the three revenue sub-divisions of the district — Dadri, Sadar and Jewar. Circle rates

are updated every year, usually on August 1.

From 2017, the circle rates in Noida, Greater Noida and other parts of the district have largely

remained unchanged. But this time the need to revise them upwards is being felt as the three

industrial development authorities of Noida, Greater Noida and Yamuna Expressway have jacked

up the property rates over the past three years. In UP, the government charges 7% of the property

value as stamp duty.

In fact, at the recently held board meeting, the first in this fiscal, the three authorities increased

the land allotment rates in Noida, Greater Noida and Yamuna Expressway region. While GNIDA

and YEIDA notified an increase of 4.15% and 5%, respectively, the Noida Authority hiked the

rates of industrial and institutional plots in phase II comprising sectors 80, 81, 83, 84, 85, 87, 138,

140, 154, 155 and 158 by 20%.

The Greater Noida Authority has increased the property rates of all categories for two years in a

row and rates of all kinds of properties, barring commercial ones, have now become dearer by at

least 20%. The Noida Authority revised the rates of sectors located close to the Aqua Line and

the expressway in 2019 but has abstained from increasing the rates of non-industrial and non-

institutional properties.

YEIDA increased rates in 2016 and 2020, and by 5% on both the occasions. This time too, YEIDA

increased the rates again by 5%. The value of properties in the notified villages along the Yamuna

Expressway that are yet to be developed or taken over, will go up further consequently.

District magistrate Suhas LY, however, said that a decision on the matter “is yet to be taken”.

“Circle rates will remain the same up to July 31. Post that, we will take a call after evaluating the

market conditions.”

The three sub-divisional magistrates and tehsildars will check the value of transactions mentioned

in various localities to decide how much mismatch exists between the authority rates and circle

Newspaper/ Online ET Realty (Online)

Date July 04, 2021

Link https://realty.economictimes.indiatimes.com/news/industry/circle-rates-may-go-up-in-noida/84111668

rates. And a decision to increase the rates could also result in increased budget for acquisition of

land for multiple government projects that are being executed in Jewar and Dadri.

Deputy inspector general of the district stamp and registration department, Rakesh Kumar

Srivastava said, “The district magistrate will take the final decision on the matter. We will share

our inputs with the administrative officials.”

Real estate experts, however, said that any hike could hit the real estate market in the district.

________________________________________________________________

Realtors convert commercial projects into residential amid tepid

demand

Revised building plans have been approved in case of 20 commercial projects in areas falling

under Ahmedabad Municipal Corporation (AMC). Five more projects in areas of

Ahmedabad Urban Development Authority (AUDA) have changed to residential from

commercial.

With the Covid-19 pandemic denting commercial real estate demand, several realtors have

converted their commercial projects into residential ones. About 25 commercial projects have

been switched to residential schemes so far this year.

Revised building plans have been approved in case of 20 commercial projects in areas falling

under Ahmedabad Municipal Corporation (AMC). Five more projects in areas of Ahmedabad

Urban Development Authority (AUDA) have changed to residential from commercial.

“We converted our commercial project at Panjrapole cross roads into a residential one. The

project now offers 3 BHK plus work from home (WFH) apartments as well as showrooms. We

changed our plan as there was a good demand for residential units in this area,” said a city-based

realtor Chitrak Shah, who is also the vice-president of CREDAI-Ahmedabad GIHED, a body of

city-based real estate developers.

Another real estate company, Venus Infrastructure, has converted its commercial project behind

Rajpath Club in Bodakdev into an upscale residential scheme after getting its revised building

plan approved.

“Our commercial project was retail heavy and demand for retail spaces took a beating after the

outbreak of the pandemic. The project location was always good for residential. Hence, we

switched to the residential project,” said Rajesh Vaswani, executive director, Venus

Infrastructure.

A builder in Sanand moved a proposal for setting up a multiplex and a shopping complex.

However, he changed the project into a twin bungalow scheme in the same area.

According to the real estate industry, work from home, high inventory, corporates putting their

expansion hold as well as territorial restrictions and fewer footfalls in showrooms and malls due

to Covid-19 have dented the demand for retail and office spaces in commercial projects.

Building plans were revised in case of three commercial projects in 2018-19 and the number stood

at seven in 2020. However, the number shot up in 2021, said AMC officials.

Newspaper/ Online ET Realty (Online)

Date July 04, 2021

Link https://realty.economictimes.indiatimes.com/news/industry/realtors-convert-commercial-projects-into-residential-amid-tepid-demand/84111649

There is, however, demand for residential housing and the segment also ensured some cash flow

to developers, which has prompted many to convert their commercial projects which are on the

drawing board to residential projects.

“Converting a commercial project into a residential one, whenever it is possible, is an intelligent

step in the right direction,” said Balbirsingh Khalsa, national director industrial and logistics and

branch director-Ahmedabad, Knight Frank India, a leading real estate consultant in India.

“On one hand, vacancy level in offices is high and rentals are falling, prospects for retail spaces

continue to be clouded amid pandemic fears. On the other hand, the demand for residential

dwellings is good and the residential housing inventory is very low at present. Currently, it makes

sense to switch to residential from commercial,” he added.

AMC and AUDA officials added that there was a rush for commercial projects in 2018 and 2019.

The trend has changed in 2021. At present, about 80% of building plans coming up for approval

in both AMC and AUDA are for residential projects. The percentage was 60% in past few years.

________________________________________________________________

Pune civic body's property tax revenue set to swell by Rs 150 crore

As per officials of Pune Municipal Corporation (PMC), the civic administration has already

started collecting property tax from 11 villages that were merged in 2017. PMC is collecting

around Rs 60 crore from these villages.

The civic body’s property tax revenue is likely to go up by Rs 150 crore with the merger of 23

villages. The civic administration has set a target of Rs 2,000 crore for the 2021-22 fiscal.

“The villages have been added to municipal limits. The property tax rates in civic limits can now

be made applicable in these villages,” said Ayush Prasad, chief executive officer of Pune Zilla

Parishad.

As per officials of Pune Municipal Corporation (PMC), the civic administration has already

started collecting property tax from 11 villages that were merged in 2017. PMC is collecting

around Rs 60 crore from these villages.

“A survey of properties in 23 merged villages will be carried out and property tax bills will be

dispatched to them accordingly,” said a senior PMC official.

The civic body has collected around Rs 902 crore property tax so far. As per PMC data, around

10.6 lakh properties are in the tax net and around 2 lakh properties are likely to be added from

the 23 villages.

Property tax is one of the biggest sources of revenue for PMC. On an average, around Rs 1,400

crore are collected from the source. However, the civic body has set itself a bigger target this

year.

With the state government issuing a notification merging 23 villages, PMC is now the largest

civic body in Maharashtra. The total area under PMC is 518 sqkm, overtaking Brihanmumbai

Municipal Corporation’s 440-odd sqkm. Unlike similar mergers in the past, all 23 fringe villages,

including Wagholi, Khadakwasla and Pisoli have been added “fully” to the limits of the civic

body, the state urban development department’s notification stated.

________________________________________________________________

Newspaper/ Online ET Realty (Online)

Date July 04, 2021

Link https://realty.economictimes.indiatimes.com/news/regulatory/pune-civic-bodys-property-tax-revenue-set-to-swell-by-rs-150-crore/84094289

Aurangabad: Developers booked for duping buyer of over Rs 44

lakh

Nanda Vaishnav (58), a resident of Sainagar in Cidco area of the city, purchased a plot

sizing over 175 square metre in gat number 102 of Satara area on April 30, 2014.

The city police have booked two developers for duping a woman of over Rs 44 lakh. The

developers have been booked on charges of cheating and criminal breach of trust.

“Based on the complaint lodged by the woman, an offence against the suspected duo from Jalna

district has been registered with Satara area police station of the city,” said investigation officer

and police sub-inspector Vikram Wadne.

Nanda Vaishnav (58), a resident of Sainagar in Cidco area of the city, purchased a plot sizing

over 175 square metre in gat number 102 of Satara area on April 30, 2014.

A few months later, the suspects, who are her son’s friends, reached out to her offering to develop

the plot. The duos, who are siblings, proposed to construct eight flats, of which, four were assured

to be given to Vaishnav.

The woman said in the agreement deed signed on September 30, 2014, the duo had taken the

responsibility to bear all the construction expenses and assured of completing the construction in

18 months.

After the construction started, the two flats on the first floor were sold at Rs 27.50 lakh and Rs

17 lakh. The suspects at the end of 2015 sought a hand loan from Vaishnav for completing the

structure. The suspects assured of returning the amount once the flats were sold out.

Falling prey to the trap, she agreed to transfer Rs 27.50 lakh to the duo’s account between January

and May 2016. During the development of the project, the suspects allegedly even made her pay

the bills for sand, bricks and other construction material.

Later the duo, not only failed to complete the project but also defaulted on returning Rs 44.50

lakh. Failing to get back her money, the woman reached out to the police and lodged a complaint.

________________________________________________________________

Newspaper/ Online ET Realty (Online)

Date July 04, 2021

Link https://realty.economictimes.indiatimes.com/news/regulatory/aurangabad-developers-booked-for-duping-buyer-of-over-rs-44-lakh/84089759

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