Lifeline from India's biggest bank offers builders hope

Mumbai

INDIA'S beleaguered developers see a glimmer of hope after the nation's biggest bank announced a programme that could unclog choked funding lines to the property market.

The State Bank of India (SBI) said it will finance both builders and home buyers, charging developers a premium and offering home buyers a refund if their apartments are left unfinished.

While Sunteck Realty will initially partner SBI, Poddar Housing and Development said it will reach out to the lender; others indicated they could also do so in the coming months.

"This is the first time a bank is taking responsibility for the completion of a project," said Rohitashwa Poddar, managing director at Poddar. "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's 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 per cent last Thursday, the biggest gain since August, after it was named as SBI's first partner.

Property magnate Vikas Oberoi, chairman of Oberoi Realty, said that though his firm does not 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, said its chairman Ashok Mohanani. Other banks may also follow SBI, he added.

Under the programme, SBI will lend developers across seven cities as much as 4 billion rupees (S$76.1 million) for apartments priced as much as 25 million rupees.

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 per cent, which would rise under the new programme; non-bank financiers already charge more than 18 per cent, Mr Poddar noted.

Growth of home sales in the seven top cities slowed to 5 per cent last year from 17.6 per cent the year before, noted Anarock Property Consultants.

About 1.15 trillion rupees of capital may be stuck in 350 large projects stalled across Indian cities, according to Citigroup estimates. The government last 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. BLOOMBERG