Central Bank eyes financing redev projects

Mumbai: Central Bank of India is developing a special home loan product that will allow it to directly finance housing redevelopment projects here, a senior official of the state-run lender has said.

There are hundreds of flats/housing societies that need redevelopment in the metropolis, especially in the island city. But the existing financing model does not allow banks to fund the residents directly or even to the societies, but only a developer/builder.

Also, the exiting regulations do not allow a lender to finance for the cost of the demolition of the old building as well financing the residents for their temporary stay. And if the Central Bank has its way, then it is going to change.

"We are developing a special home loan product that will enable us not only to directly fund the residents of old buildings but also to meet the demolition cost apart from cost for finding a new accommodation during the redevelopment period," Central Bank General Manager Ram Sangapure, who is the man behind this idea.

Explaining the rationale for such a product, he said, "If the Reserve Bank allows them to launch this product, it will greatly help the residents benefit from the TDR (transfer of development right) sales. Currently, developers make huge money out of TDR sales, as they return the newly-developed flats the original owners for free.

TDR means making available certain amount of additional built-up area in lieu of the area relinquished by the owner of the land, so that he can use the additional space either himself or sell it to another in need of the extra built-up area.

Many builders in the centuries-old city such as HDIL and Lodha are heavily into redevelopment market, which is worth thousands of crores.

"The advantage of such a funding is that either the residents can get larger space on additional payments to the society or the society can sell them and pay back the loan before maturity," Sangapure said.

Asked whether the bank has approached the RBI for permission, Sangapure replied in the negative and said the product is yet to be finalised.

He further said the bank is also looking at ways to fund the elderly residents of such projects as they don't have much income barring the pensions.

On whether such a product will bring down the redevelopment financing market, he said it was unlikely as if approved this will be only product in the market.

Already four-five societies have approached the bank for direct financing. And the market is so vast as there are tens of hundreds of old buildings that need redevelopment, Sangapure said, adding the public lender is also talking to Mahda, the state housing development authority.

On whether the bank has set target for this, he said these four-five projects alone will be worth around Rs 96 crore and the initial target is to fund at least 10 societies.

Central Bank is a small player in home loan market, with an exposure of only Rs 6,000 crore as of the September quarter, which was a 22 per cent growth year-on-year.

On whether the bank is facing any delinquencies on the home loan front, he said the bad loan assets in the home mortgage was 3 per cent as of Q2.

Source: Financial Express