Rating cos may help banks crack the realty code
With real estate financing gaining momentum and becoming more organised, banks are increasingly tapping doors of rating agencies with a request to offer rating services on shopping malls and restaurants.
By Preeti R Iyer, TNN |
MUMBAI: With real estate financing gaining momentum and becoming more organised, banks are increasingly tapping doors of rating agencies with a request to offer rating services on shopping malls and restaurants.
Even rating agencies have begun to look at this sector with greater focus and have added newer verticals such as real estate, retailing infrastructure and IT-enabled services.
Considering that the hotel industry is also showing signs of a boom, it is inevitable that banks look at rating agencies as a source by which they can take conscious decisions while evaluating risks, said industry sources.
While larger players like ICICI Bank and HDFC may have own internal rating departments to study potential projects, which they may look at financing, smaller banks which may not have the wherewithal to put in place their internal teams may look at rating agencies in a bid to outsource the entire due-diligence procedure.
In the recent past, banks have even appointed professional auditors and civil engineers and are certainly looking at making maximum use of rating agencies while taking decisions pertaining to loan appraisals. YES Bank, for instance, is in talks with rating agencies to evolve models on an internal basis to rate potential borrowers, who could be small and medium-sized entrepreneurs.
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A senior official from Fitch said, “Banks have been approaching us with requests to provide rating rationales on shopping malls, restaurants, etc. As far as developer ratings are concerned, although we do not have a specified rating scale, more reliance is placed on the viability of the project than the developers’ credentials.”Fitch, in this context, is in the process of evolving a calibrated model for progressive payment structures to rate lease rentals for office space, which also includes retail outlets and shopping centres.
Another credit rating agency, CARE, has specialised project advisory committees to prepare reports analysing cash flows and economic viability of industrial ventures such as power projects, road projects, retail chains, etc. Crisil, on the other hand, has bank loan ratings to assess loan receivable for a variety of borrowers, including real estate ventures like malls.
In its annual monetary and credit policy announcement, the Reserve Bank of India had hiked the provisioning for standard advances to 1% for loans to commercial real estate and had also increased the risk weightage on exposures to commercial real estate raised to 150%.
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