Banks won’t lend credit to projects not registered with RERA

Banks won’t lend credit to projects not registered with RERA
09/08/2017 , by , in News/Views

In consultation with the Reserve Bank of India, commercial banks have decided not to extend loans to those projects which have not been registered under RERA.

“We have to look for some security mechanism, and since RERA is designed to weed out fly-by-night operators, we have decided not to extend credit to projects not registered with it,” said a bank official to media. “Adhering to the regulations will safeguard our interests, it’s better to be safe now than regret later.”

According to media reports, banks have also sought additional collateral, including on personal properties of promoters, as guarantees while disbursing loans to a few real estate developers.

“We are very apprehensive because even if we disburse loans as prescribed under the law, the way it is designed, it does not protect our credit. If a loan turns bad, customers will be refunded but there’s no inherent protection for us under the law,” said a PSU bank official. “So, we are being extremely careful about lending to the sector.”

Under the new law, Real Estate (Regulation and Development) Act, 2016 (RERA), a developer will have to maintain 70% money collected from homebuyers in a separate account, which would leave them with only 30% of the sales proceeds to use for any other purpose, against 100% earlier.

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