SBI to contribute up to 10% of the real estate fund announced by FM: Dinesh Kumar Khara
SBI will have clear arm’s length distance when this fund is managed by SBICAP Ventures.
I just want to get your initial reactions on the kind of booster shots this will be for the real estate sector.
This particular initiative taken by the government is very welcome, particularly for declogging of the real estate sector. There are many projects in need of last-mile financing. This will open up opportunities for such funds to avail the funds and complete their projects and thereafter the money will start circulating. That is a very positive step taken by the honourable finance minister.
Currently, how much of your real estate exposure has already been classified as NPA? Where could recovery happen once the units are delivered?
I have not yet taken stock like that but if we look around the industry as a whole, we do get a sense that many projects are stuck and in fact, many of the projects would have been funded through the NBFCs because construction sector particularly was one of the NBFC favourites. So, the government move it will perhaps release the money locked in by NBFCs and thereafter that money will start circulating.
Don’t not you think this move by the finance ministry also makes you a little susceptible to increase in NPAs. We understand that there is an eligibility criteria and this will include stress projects classified as NPAs and those in NCLT as well. There should be a reference by existing lenders, ongoing projects registered by RERA.
The point is that as of now, as far as the books are concerned, it is all going to be managed by an alternate investment fund which will be managed through SBICAP Ventures, a step down subsidiary for our SBI Capital Markets. After doing due diligence, projects with adequate visibility would be picked up and completed by pumping in fresh money.The buyers will also be in a position to get their home possessions. So, very comprehensive criteria will be laid down for selecting the projects. This will prevent the possibilities of the portfolios getting further NPAs.
NCLT projects will also be getting funding. Some would argue that the rogue builders who have not delivered and who have not kept up their commitment, are now getting a lifeline. Is this giving the right message?
The point is that the intent is very clear. The intent is to help those builders who are stuck for not having adequate funds for completing the projects. As for the quality of the builders, I am sure the fund managers will be mindful in terms of selecting the kind of builders whom they would like to support because the idea is one should be net worth positive when it comes to the project per se. Of course, they should be RERA approved. RERA approved and net worth positive itself are the two major criterias which any such perspective builder will have to meet.
Besides the eligibility criteria which was highlighted by the finance minister, is there any other criteria which has been put in place, maybe on individual ticket size of how much you are going to lend or is there no bar on that?
Of course in the scheme of things which was announced yesterday, they have mentioned that as far as metropolitan, Mumbai Metro is concerned, the unit cost of the houses should be less than Rs 2 crore and for the other locations, it is less than Rs 1 crore. They are more into the middle income and low income kind of houses, which are intended to be supported in this particular process.
These are the broad contours which have been given to the fund manager and now they will have to devise their own criteria of selection or identification of projects. They have to keep commercial prudence in mind while they are picking up such projects.
You said a due diligence is going to be done for each builder. But would not that make the dispersal process rather long? How will you define the criteria?
The investment policy has to be firmed up and the criteria will be laid out. But a minimum time for carrying out such an activity would be must and moreover it is all handled by professional fund managers who have adequate skills for identifying such projects.
Rs 25,000 crore is the overall corpus between SBI and LIC. How much of this will SBI be putting in?
As far as Rs 10,000 crore is being brought in by the Government of India, we can go up to 10% of the fund size. So, that is from the SBI side. The commitment is there and the identification of projects. At the time of outlays, the money will be available from the respective institutions. For building up this fund, we are in a position to contribute up to 10% and thereafter we will have to look for some sovereign or other wealth funds and also various entities who are interested in putting in money in such kind of funds. Various pension fund managers could be looked at as well as various life insurance companies, for such kind of investments.
I am assuming that when you invest the sum, it would be part of your treasury activity?
When we are investing into this fund, it will go from SBI to this particular fund and as I was mentioning, this is going to be managed through our SBICAP Ventures which is a step down subsidiary for our SBI Capital Markets and the investment committee will not have any participation. We will have clear arm’s length distance when this fund will be managed.
When the fund will start deploying capital and when the returns will start coming in, what happens to that Rs 10,000 crore? You will get profits, you will get returns and will that become part of your top line?
Which Rs 10,000 crore?
The money which you would be investing in this fund, I am sure once the fund will start deploying, the funds will have returns and recovery. Will that go to the builder or will that come to SBI?
No, see the point is those who are investing will get the return.