Mumbai: The Reserve Bank’s proposals on restricting specific real estate funding by NBFCs will significantly affect land financing by them, India Ratings and Research (Ind-Ra) said in a report.
In a recent discussion paper, the RBI proposed to restricts real estate funding to only those projects wherein the approvals or permissions are in place.
New norms such as board-approved limits for exposure to commercial real estate sector and internal sub-limits for financing land acquisition have also been proposed.
Besides, the discussion paper stipulates capping the exposure in case of other sensitive sectors such as the capital market.
Accordingly, these proposals are seen as curtailing the risks faced by NBFCs.
“The wholesale NBFCs that have been using structuring to fund land acquisitions have generally been averse to funding land acquisitions over the last couple of years.
“However, the regulation proposed by the discussion paper will impact the business flexibility for real estate-financing NBFCs, which take exposures at several stages of the project.”
As per the Ind-Ra report, exposure at the nascent stage of the project carries better margins and enables the NBFC to compensate for the lower margins that it makes on the exposures on advanced-stage projects, which is where it faces competition from banks.
“Having said that, the revised norms put a check on the asset side risks for these NBFCs.”
Furthermore, the report cited the proposed restriction on NBFCs to provide loans for the buyback of shares or securities would affect the business model of wholesale NBFCs, which have developed the expertise of offering structured credit to their borrowers in cases wherein banks could not fund them due to regulatory restrictions.
