Kamath panel framework to help cash-starved developers meet liquidity challenges: Realty players

NEW DELHI: Real estate industry bodies have welcomed the recommendations made by K V Kamath-led panel on loan restructuring, saying this would help the cash-starved developers in meeting liquidity challenges caused by the Covid-19 pandemic.


Broadly accepting the Kamath panel's recommendations, the

Reserve Bank

of India on Monday specified five financial ratios and sector-specific thresholds for resolution of Covid-19-related stressed assets in 26 sectors, including auto components, aviation and tourism.

"Real estate is among the 26 sectors, and this move should help the liquidity strapped industry to overcome the challenge caused by the pandemic. The liquidity injection, in turn, will help real estate tide over its worst crisis so far," Assocham and Naredco President

Niranjan Hiranandani

said.

The financial cushion as a result of the loan restructuring will improve cash flows in this liquidity strapped situation, he said.

Hiranandani said this, in turn, would help pump in working capital and funds necessary to restart work on projects.

Welcoming the exceptions to thresholds made to the real estate sector besides auto, aviation, road and trading wholesale, Credai President

Satish Magar

said the real estate sector has been highlighting severe liquidity crunch and its negative impact on the sector even before Covid-19 crisis.

"The RBI and the Government of India through the Ministry of Finance must address this at the earliest," he said adding that the SWAMIH Fund and additional Rs 10,000 crore to NABARD and National Housing Bank address only a small percentage of liquidity crisis in the sector.

"As per the framework, accounts classified as Standard as on March 1, 2020 are eligible for resolution. CREDAI demand has been that the accounts marked as SMA1 and SMA2 should also be made eligible for loan recast," Magar said.

He added that the demand for additional credit facilities on existing credit limit would also address the stress on the sector to a certain extent.

Anarock Chairman

Anuj Puri

said the very fact that real estate is among these 26 recommended sectors is "good per se".

"However, the committee maintains that banks may adopt a graded approach based on the severity of the coronavirus pandemic in a sector. Banks will decide the specifics for loan restructuring. In all, reasonably sound players with good financials will stand to benefit from this move," he said.

JLL India CEO and Country Head Ramesh Nair said it was timely for the RBI to allow one-time restructuring of corporate and personal loans, including home loans, in the last MPC meeting held in August 2020.

"For timely implementation of this scheme, the K V Kamath committee has come out with guidelines for 26 sectors, including real estate. Being a long-awaited measure, real estate is expected to be major beneficiary of this," he added.

J Sagar Associates Partner Soumitro Majumdar said the expert committee has detailed out definitions and mandatory financial ratios for resolution plans on a sector-specific basis. General mandatory ratios for sectors, other than those specifically mentioned, have also been set out.

"This should bring about a basic uniformity in performance appraisals," Majumdar said.

The regulatory clarity on inter-creditor agreement (ICA) execution being mandatory will nip a lot of inter-creditor disputes in the bud, and compel focused efforts towards timely resolution plan implementation, Majumdar added.

Cyril Amarchand Mangaldas Partner L Viswanathan said the RBI has prescribed five parameters that are ceilings and floors as the case may be for lending institutions whilst preparing resolution plans.

The RBI has also prescribed sector-specific thresholds for 26 key sectors which are expected to bring in the required level of uniformity and rigour in assessing impact of Covid-19 on companies and preparing resolution plans.

"Such parameters will provide flexibility to the borrower as well as cater to the need to have a sustainable business in the near future where the lending institutions are also free to stipulate other parameters in addition to the mandatory ones.

"Further, these baseline ceiling or floor for the mandatory parameters can also be strengthened based on cash flow projections," said Viswanathan.

Askcred Founder and CEO

Aarti Khanna

said the banks need to act fast now to operationalise these parameters so as to benefit from them.

Shardul Amarchand Mangaldas & Co Partner Veena Sivaramakrishnan said the report provides a path for implementing a one-time restructuring with certain pre-identified ratios and parameters.

For real estate companies, this is a special purpose vehicle (SPV)-level requirement and not a project-level requirement as was expected by few developers, said Sivaramakrishnan.

Lumos Alternate Investment Advisors MD & CEO Anuranjan Mohnot said the Kamath Committee recommendations are welcome relief for real estate developers and real estate projects coming to stress on account of current Covid-19 situation.

"However, to pass on real benefit of these recommendations, proper guidelines may be required to eliminate lower-level banking discretions on assumptions of various financial parameters like sales value, sales velocities," said Mohnot.

He added that since these assumptions may seriously impact quality and quantum of benefits that the RBI is planning to pass on to the real estate developers.

Sachin Chhabra, founder of B2B grocery e-commerce company Peel-Works, said working capital can catalyse the economy back to the growth phase without a doubt.

This kind of lending can be made less risky with a tighter governance framework, including reporting processes, hypothecation, safety capital, and getting the shareholders to guarantee the amount borrowed, he said.

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