Home buyers, lenders will have to bear brunt of bankruptcy: SBI official

NEW DELHI: Both home buyers and lenders will have to bear losses in bankruptcy cases in the real estate sector, India's largest bank SBI said on Monday. The bank's managing director (national banking group) Rajnish Kumar said no one should expect to recovery of their full investment in cases of losses.

Kumar was speaking at the annual convention of NAREDCO, a builders' lobby group, on Monday. The banker said only one player can't bear the entire loss. Stating that buyers' right cannot be denied in any stuck projects, he said homebuyers and lenders must be put on "equal footing" and the losses should be borne at pari passu (at the same rate). However, he said that a final decision would be taken by the National Company Law Tribunal (NCLT). His comment comes in the wake of the NCLT last month admitting IDBI's plea for initiating insolvency proceedings against Jaypee Infratech for defaulting on a Rs 526crore loan. Investment of nearly 30,000 home buyers is stuck because of insolvency proceedings against the company and home buyers are seeking at par status with the secured lenders of the company. Similarly, Bank of Baroda has also approached NCLT for initiating insolvency proceedings against Amrapali.

Kumar advised homebuyers to purchase only completed flats to avoid any construction risk and secondly investing in under-construction projects is no more attractive with hardly any appreciation in property prices. SBI has been conservative in lending to projects along the Noida Expressway. "If there are ready to move in homes available, why do homebuyers need to buy into an under-construction project that runs a key risk of construction? If they are not investors and do not have the wherewithal to undertake a due diligence of the project, it's better to look for a ready flat," Kumar suggested.

However, the bank will continue to provide loans to homebuyers in projects that are compliant to real estate regulation law (RERA), Kumar said.

The banker also said the implementation of RERA and bankruptcy and insolvency code have reduced lenders' risk, which will have positive impact on the sector.

Speaking on the sidelines of the NAREDCO event, Kumar said, "NCLT will take a final decision. The insolvency law is also evolving. As a bank we do project funding as well as provide home loan to buyers. So in this debate, we are with both lenders and home buyers."