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Jayanta Mallick
Somasroy Chakraborty

Kolkata, Oct. 30 The Reserve Bank of India’s move to hike cash reserve ratio by 50 basis points is likely to reduce the availability of rupee-denominated capital for real estate developers.

According to industry insiders and bankers, this may, however, have a marginal impact on the cost of debt. Stock analysts felt the impact on the realty counters was negative in the face of restrictions on fund flow and cost implications.

The 14-stock BSE Realty Index finished up 2.36 per cent with 50 per cent advancing. DLF, with a top weightage of 36.04 per cent, was up 5.78 per cent owing to better results and the 100 per cent interim. The losers were Akruti Nirman, HDIL, Mahindra Gesco, Omaxe, Parsvnath, Peninsula and Phoenix. The other six were marginal gainers or movers for specific fundamental reasons.

“The RBI over the last two to three quarters has maintained a hard stance on lending to real estate developers. The CRR hike will make flow to the builders tighter. However, there will be a marginal impact on the cost of debt,” Mr Ankur Srivastava, Managing Director of DTZ, a global property consultancy firm, told Business Line. Real estate prices are unlikely to be affected as a result of the CRR hike, he maintained.

“The unwillingness of RBI to support the real estate (developers) sector has already created a situation of credit slowdown from banks. The move will only force developers to look more towards private equity, public issue, placement, overseas float or channel in money through SPVs and FCCBs, albeit at a relatively higher cost,” a Kolkata-based developer said on condition of anonymity.

However, bankers and analysts are apprehensive that the RBI, while going forward may restrict overseas funds to the sector, depending on the evolving dollar supply and currency scenario. According to Mr JC Sharma, Managing Director of Sobha Developers, “as private equity is not so cheap, banks have so far remained the preferred source for most developers. Cost of funding is not an issue for big developers; it’s the availability that matters” .

He, however, felt that the current situation would impact small and unlisted developers more than the bigger players.

According to Mr Prakash P Mallya, CMD of Vijaya Bank, “lending rates are unlikely to go up in the near future. Banks are anyway having limited exposure to the real estate sector as per RBI guidelines.” According to industry sources, some developers have discovered innovative routes – such as clubbing infrastructure projects with realty plans – to by-pass RBI guidelines.

More Stories on : Real Estate & Construction | Stocks | CRR & Bank Rates

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