SBI will lend developers as much as Rs 400 crore for homes priced at as much as Rs 2.5 crore.
India's beleaguered developers see a glimmer of hope after the nation's biggest bank announced a program that could unclog choked funding lines to the property market.
State Bank of India on Wednesday said it will finance both builders and homebuyers, charging developers a premium and offering the latter a refund if their apartments are left unfinished. While Sunteck Realty Ltd. will initially partner SBI, Poddar Housing and Development Ltd. said it will reach out to the lender on Monday and others indicated they could join in coming months.
"This is the first time ever a bank is taking responsibility of project completion," Rohitashwa Poddar, managing director at Poddar Housing, said by phone. "It's a very big move."
The weakest economic growth in a decade is denting demand for apartments even as a crisis among shadow lenders squeezes financing for developers, leaving them unable to finish projects and sometimes forcing existing buyers to roll up their sleeves and complete construction of their own homes. The nation's biggest bank now stepping in as middleman, following a government move to set up a fund to complete stalled projects, may go some way in restoring trust.
Sunteck Realty's shares jumped 6.6% on Thursday, the biggest gain since August, after it was named as SBI's first partner.
Vikas Oberoi, chairman of Oberoi Realty Ltd., said that though his firm doesn't need project finance it "will be happy to tie up with SBI under this scheme so our buyers feel additionally secured."
Mumbai-based developer Ekta World may consider the plan in future, Chairman Ashok Mohanani said by phone. Other banks may also follow SBI, he said.
Under the program, SBI will lend developers across seven cities as much as Rs 400 crore for apartments priced at as much as Rs 2.5 crore. SBI will only fund those with a good credit score and strong track record of completing projects, Chairman Rajnish Kumar told CNBC TV18, adding that developers will be charged a premium while home-loan customers can avail existing rates.
SBI's loans for so-called affordable housing projects carry an interest rate of 10.5%, which would rise under the new program, while non-bank financiers already charge more than 18%, Poddar said.
Growth of home sales in the seven top cities slowed to 5% in 2019 from 17.6% a year ago, according to Anarock Property Consultants. About Rs 1.15 lakh crore of capital may be stuck in 350 large projects stalled across Indian cities, Citigroup Inc. estimates. The government in November announced a 250 billion-rupee fund to salvage stuck residential projects.
SBI may also have tied up with mortgage guarantors to insure itself against risks, said Pankaj Kapoor, managing director at property-research firm Liases Foras. The lender can cover about 30% of India's real estate market under this program, Kapoor estimates.
"Slower sales are the biggest issue for developers and the new funding method will address this problem," Kapoor said. "It will bring back confidence."(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)