(LiveMint)
Banks have slowed lending to real estate companies, typically considered a high-risk sector, following the $2 billion fraud at state-run Punjab National Bank (PNB), leaving the door open for non-banking financial companies (NBFCs) to grab opportunities in the sector. Bankers are now exercising extra caution in loan disbursements by seeking additional documents and collateral as well as reviewing existing limit both on fund and non-fund based lines of credit.
“There is an overhaul of credit assessment processes and it is only natural that real estate developers, especially in the commercial segment, are witnessing delays in loan disbursement given its high-risk nature. In commercial projects, banks are keen on lease rental discounting and some kind of asset structuring to minimise risk,” said a senior official of a Mumbai-based bank, requesting anonymity.
In the PNB case, jeweller Nirav Modi’s firms allegedly in collusion with bank employees fraudulently used letters of undertaking to raise overseas funds and as a fallout of the fraud, the Reserve Bank of India banned issuance of letter of comfort and LoUs, basically types of bank guarantees.
