Bank lending to real estate developers seems to have jumped in recent months after a slump until June 2010.
Net credit flows to the real state sector from banks jumped to Rs 9,604 crore in this financial year up to September 24, a five-fold jump compared with a similar period a year ago.
Lower debt on balance sheets and possible repayment of restructured loans post June (when many of them fell due) may have improved banks' confidence to lend to the sector.
In fact, real estate is the sector to receive maximum credit inflows from banks for this financial year so far, next only to the education industry.
Increase post May
That much of this leap in lending has happened in recent months is clear when one compares recent numbers with the Macro Economic and Monetary Development First Quarter Review (June) of the RBI.
According to the June policy review, annual inflows into realty for a 12-month period ended May 21, were Rs 1,115 crore. As against this, the first six months of this fiscal have seen inflows eight times this figure.
Clearly, it is between May and September this year that credit to the sector picked up.
This could be due to a couple of reasons: one, a number of real estate companies have reduced their high leverage by raising equity, either by way of qualified institutional placements or through private equity funding. Real estate players raised about Rs 12,000 crore through QIPs last year and have lined up quite a few issues in 2010 as well.
Private equity and venture capital funding of the sector too has brought in fresh equity. According to Venture Intelligence, a research service focused on Private Equity & M&A, investments in real estate through the private equity/VC route stood at $1,338 million or about Rs 6,000 crore between January and October.
Clearly, the higher infusion of equity has ensured de-leveraged balance sheets for real estate companies. Top listed players such as Unitech and DLF now have their net debt to equity ratio between 0.5 and 0.75.
Two, a number of bank borrowings to corporates underwent restructuring under the economic stimulus window that was open until June 2009.
A good number of those loans were said to be due for repayment post the first quarter of this fiscal when the moratorium ended. Repayments of these loans by real estate players may also have provided leeway for banks to offer fresh loans.
In fact, while the debt for companies such as HDIL or Unitech is lower than a year ago, they have seen an increase compared with their March outstandings.
While lending to the sector has been improving, NPA provisioning by loans in the September quarter has seen an increase. It is not yet clear as to which sectors have resulted in higher provisioning by banks.
That said, if the recent tightening of risk weights and asset provisioning of home loans is anything to go by, the RBI may be subtly tightening the screws on the real state sector once again.
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