RBI Resolution Plan Guidelines for Residential Realty

The Reserve Bank of India (RBI) has just lately launched sector-specific leverage and debt-coverage guidelines for figuring out eligibility for restructuring of careworn loans, together with these within the residential real property sector. It has been recognized as one of many extra deeply impacted sectors, and consequently, comparatively excessive leverage ranges have been permitted for the sector. The required debt protection ranges are, nonetheless, just like these anticipated throughout most recognized sectors. As per ICRA estimates, the working money flows of real property builders are anticipated to scale back by round 30-50% within the present fiscal. Mahi Agarwal, Assistant Vice President and Associate Head at ICRA, said, “Developers were already suffering from reduced credit availability post the onset of NBFC liquidity crisis and with Covid-19, the overall liquidity available to the residential real estate sector has reduced further, amidst lender’s concerns on deteriorating asset quality and increasing loan-to-value ratios. In addition, collections and construction-linked disbursements have also witnessed a slowdown due to the weakness in demand and disruption in execution.” However, with these guidelines providing for financial headroom, stressed developers are now likely to receive much-needed liquidity support which will aid management of cash flows and allow for completion of slow-moving/stalled projects. The efficacy of the assumptions made by the lender though, particularly with regards to demand risks, will remain a critical determinant of the ultimate success of the restructuring plan. As per the resolution plan guidelines, residential developers will need to maintain the following parameters at a project-level in order to be eligible for loan-restructuring:   Financial Parameter Guidelines for Residential Real Estate (at Project Level)

Parameter	Projected Level	Remarks
TOL/ATNW	<=7.00	To be met by FY2023
Debt/EBITDA	<=9.00
Current Ratio	>=1.00	To be met for each year of projected cash flow from FY2022 onwards
Average DSCR	>=1.20
DSCR	>=1.00

  If the above parameters are met, the residual tenor of the concerned loan may be extended by up to two years, with or without a payment moratorium, with the asset classification remaining as “standard”. Sanction of additional facilities, and/or conversion of debt to equity or non-convertible debt securities may also be considered.