With private equity and the stock markets drying up in the ongoing slowdown, the realty firms are turning up to banks for funding. The builders are relying on banks to help them to complete their projects.

During the previous fiscal, the real estate sector accounted for the largest portion of non-food credit disbursed by the banks. This credit was used by the developers for meeting their working capital requirement.

An official with a large foreign multinational bank said that, "Fresh credit offtake is on account of project financing." The official added that the builders were facing cash crunch as the amount to be received from residential projects under construction was getting blocked. The buyers are postponing their payment until possession of the property. Therefore the banks are stepping forward to help the developers complete their projects and make them ready for sale.

The completion of the projects would enable the developers to repay their loan through the money received by the sale of the property. Further the completion would also help developers to liquidate their inventory of unsold properties and thereby generate cash flows to meet operating costs.

As per the RBI data, fresh loan disbursement by the banks to the realty firms recorded a growth of 61.4% to Rs 34,500 crore for the 11 months of the fiscal against 26.7% growth during the same period, a year ago. Most of these funds were extended between December 2008 and February 2009.

Moreover to support the banks move, RBI has also reduced the risk weightage on real estate loans from 150% to 100% in its latest monetary policy review.

Although the banks have been cautious on lending to real estate companies but in the recent times they are increasing their real estate loans disbursement while ensuring that the safety net is in place. Executive Director, Bank of India, M Narendra said, "Banks are in no hurry to lend to meet their credit offtake targets."

He further added, "Thorough due diligence is done before sanctioning such loan applications. The cash flow statement, sales potential, and the location of the project are some of the factors that are studied to determine the viability of the project."

Meanwhile the banks are also restructuring some of the real estate loans so as to remove them from the non-performing assets (NPAs) category. "Debt restructuring just means that cash flows receivables for the bank from a particular project would be postponed. This does not form part of the new loans given by the bank," said Mr Narendra.