Realty package not to help buyers, May hit more banks,Rs 71000 cr default lurks,Two more PSB losses soar

The move to rejuvenate realty sector through Rs 25,000 crore special bank and FI funds looks good but may be misplaced. The cabinet committee nod for the package risks the people’s deposits. It include Rs 10,000 crore to be sunk by the central government Rs 15,000 crore by banks, FIs, sovereign and pension funds. These are all diversion of people’s deposits in risky ventures. The Rs 25,000 crore fund is a small fraction of Rs 4,64,300 core worth unfinished, many now decaying, projects in seven top cities. The fund will not help the core – buyers. Apparently the realty sector lobbying succeeded. They have been saying that the banks have cash stash of Rs 1.5 lakh crore “unutilized”. This is the biggest myth. Indian banks and NBFCs are in severe crisis. Their cash has evaporated since the UPA “incentives” to the industry post-Lehman sub-prime crisis in 2007-8. Indian industry virtually was doled out huge loans though they were sitting on huge cash reserves of over Rs 2 lakh crore.The public sector banks have over Rs 14 lakh crore accumulated NPA – largely it means that they have lost the money – deposits of India’s poor and middle class. The mergers of various banks are the result of this profligacy.It led to virtual denudation of bank coffers, much of it led by the realty sector. The realty did not need the funds as it was pouring in from home buyers. But the sector siphoned off and swindled the money leading to unfinished 5.76 lakh units today, mostly legacy of that era. The courts intervened in a number of cases forcing builders to take corrective steps. But it has not helped the buyers. Lakhs of them in Delhi and Mumbai, Hyderabad, Bengaluru, Kolkata and Lucknow today see losing their life’s earnings. The biggest shock to the realty sector has come from road and highway sector. They were funded by IL&FS on the premise that it would be repaid through collection of toll. Interestingly toll has become the biggest scam. The toll collection is increasing every year but IL&FS was not repaid. It has collapsed in 2018 and Rs 91,000 crore has been lost. It has hit other NBFCs including housing finance companies.  Little is known about actions taken against large toll companies. The new package may be taken by them as a reward for swindling public fund. It is worth mentioning that NBFC’s are a key source of funding for realty projects in the country. The liquidity crunch due to the collapse of IL&FS had a devastating effect on the real estate sector as builders lacked the capital to complete stalled projects. The policy makers need to review the decision for the new package. While concern is welcome, the remedy needs a relook. Till 2008, NPAs were around Rs 4 lakh crore. It soared to over Rs 12 lakh crore in the next four years as 50 large companies, as per CAG, did not repay huge loans. Now having much of it settled through book process, it remains officially over Rs 9.1 lakh crore, actually it may be higher. A SEBI action On November 2, 2019 reveals three banks being in crisis zone – Indian Bank – divergence of Rs 820 crore in its net 2018-19 NPA, Union Bank Rs 998.7 crore and private Lakshmi Vilas (LV) Rs 54.9 crore.The net loss of Union Bank widened to Rs 3978.37 crore in 2019 from Rs 2947.45 crore and LV Rs 1006 crore from Rs 894 crore. The financial sector is in difficulty. There is little guarantee that banks would be repaid after doling out Rs 25,000 crore to now mostly sick realty units. India’s slowdown, which has hit even the IT sector like Infosys, is led by the failed realty sector. They promised and collected funds from the people and banks. The builders neither delivered units nor repaid. Now they are having a double-profit as the new package would give them more and at as hinted on low interest rates. It appears the governments, advised by the same set of people or officials, have not been able to resort to the right remedial measures. They are unable to see beyond the clichéd methods. The fault lies in the system of high taxation, tolls, fees, charges and liberal loans to mighty. In contrast with whose money these games are played – bank or insurance or mutual fund depositors are treated shabbily. The depositors suffer as deposits are taxed – unbelievable, interest rate being continuously cut and now after the PMC bank failure entire banking system is looked at with suspicion. Demands for payment of government and corporate salaries in cash are being raised by workers of different sectors. Some are even demanding Constitution amendment to check free hand to governments on monetary matters. Questions are being raised as to how any government could play with banks or LIC deposits that belong to the customers and not the government. Even relook is being suggested for preventing interference in public sector companies like Air India, MTNL or BSNL.Realty in India feels markedly different from the difficulties it faced in recent years on account of slack demand. Rating by Fitch says that in the first of 2020, the real estate sector would have to repay loans worth over Rs 71,000 crore. Default in repayment could affect mainstream banks and NBFCs. Bankruptcy among realty companies have doubled in a year. Insolvency and bankruptcy Board of India data state that such realtors like Unitech, Jaypee and Amrapali may miss the deadline for repayment. It is likely to aggravate as house sales declined by 11 percent in 2019-20 and 47 percent slump in new projects. Despite slump sellers have not reduced prices. Taxes remain high and calls for cut.

Stamp duty charges for property registration are higher than most other countries. The GST on house sells and bank transactions have worsened it. The realty sector is risk laden. Mere cosmetic fund is not a solution. It calls for open discussion on the economy, taxes and banking system and curbs on rights of executive for lasting solution and real growth.(courtesy to Business Standard for the picture)

—————————————————————SHIVAJI Sarkar

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