May 2018 smartGOV_eMagazine_May2018 - Page 25

projects are likely to suffer due to the ongoing banking mess. To avoid a further crisis, most banks have laid down stringent lending norms; as such, banks are refusing to fund even projects that fall under the affordable housing category due to the mounting NPAs in previous years. This could seriously derail the Government’s ambitious project ‘Housing for All by 2022’ mission. Impact on property prices With banks being extra cautious and literally pulling out of the property market, private equity players and other financial institutions have come to the rescue of several Indian developers. The current numbers indicate that nearly 75% of the funding in real estate is via the PE route. These options are eventually expensive for developers who, in turn, pass the buck to property buyers by increasing property prices. If banks proactively extended credit to developers at subsidized rates, it would eventually help keep a check on property prices as well. Property cycle stagnation With banks shying away from lending to developers, the property cycle may grind to a halt across cities. There are several under-construction projects that need funding for completion. For instance, NCR has maximum project delays due to the severe cash crunch. With banks refusing to give funding to many developers there, these players are unable to complete their projects. If banks offered them credit, their projects would be completed and the development cycle could resume - which would ultimately lead to a faster revival of the sector. On the Positive Side The recent crisis is paving the way for several structural changes within the Indian banking system. For instance, the RBI unveiled a new charter of rules early this year for recognizing defaulting loans and way s to resolve the crisis. More so, the passing of the NPA ordinance in 2017 empowered the RBI to directly intervene in bad loans and thereby go some ways in resolving the NPA deadlock. An overall reduction in bad loans will eventually encourage banks to issue fresh loans to credible players. With a healthier banking system, the economy can also begin firing on all cylinders again.  25 | May 2018 | www.smartgovernance.in