Nirmala Sitharaman’s announcement for housing: AIF for NPA-tagged projects is a great idea, but devil is in the detail

The big relief to the home buyers and developers in Sitharaman�s announcement is that the fund can be availed by even those projects that are tagged as NPAs by banks

Dinesh Unnikrishnan November 07, 2019 08:06:05 IST
Nirmala Sitharaman’s announcement for housing: AIF for NPA-tagged projects is a great idea, but devil is in the detail
  • This isn't a new scheme. Sitharaman had announced about this early this year

  • The big relief to the home buyers and developers in Sitharaman's announcement is that the fund can be availed by even those projects that are tagged as NPAs by banks

  • The government needs to ensure that projects that are stuck for fault of developers, i.e.: diversion of funds or fraud, do not benefit from the AIF scheme

The Union Finance Minister Nirmala Sitharaman’s announcement that the government will take the initiative to set up a Rs 25,000 crore Alternative Investment Fund (AIF) to lend a helping hand to stalled housing projects, including the ones that are already tagged non performing assets (NPAs), is welcome news for a number of developers and home buyers who are stuck halfway in their projects.

To be sure, this isn’t a new scheme. Sitharaman had announced about this early this year. Now the details have come.

According to Sitharaman's presser, the government will contribute Rs 10,000 crore to the AIF while the remaining will come from Life Insurance Corporation and State Bank of India (SBI).

Sitharaman said the fund will be professionally managed and the money will be put in an escrow account that will be released to the developer in stages depending on the completion of phases. This is a wise move since chances of money misuse is less. The big relief to the home buyers and developers in Sitharaman’s announcement is that the fund can be availed by even those projects that are tagged as NPAs by banks. Several stalled projects where developers have run out of funds in a low-demand economy and have defaulted their payments on banks will benefit.

Nirmala Sitharamans announcement for housing AIF for NPAtagged projects is a great idea but devil is in the detail

File image of Finance Minister Nirmala Sitharaman. PTI

The government’s estimate shows that there are around 1,600 incomplete affordable and middle-lower income housing units and 4.58 lakh housing units that will benefit from the scheme. The reasons for Sitharaman’s special focus on the real estate sector aren’t hard to understand. The sector is in a mess. The residential real estate market has been grappling with demand problems for too long as developers are running short of funds and exorbitant prices are acting as a deterrent to new home buyers.

The slowdown in the real estate sector has had a cascading impact on allied activities such as cement production, construction labour and business housing lenders. While the broader real estate market can be revived only if the economic scenario improves and prices ease, the FM’s announcement will help to address one big grey area of stuck projects, especially that are already tagged as NPAs. Channeling funds to these projects will simultaneously offer relief to developers, home buyers and even the banks that have seen high NPAs in the recent past.

AIF is an excellent idea. But, like in the case of any good scheme, the key is execution. The projects that are targeted under this scheme are stuck in the market for a while now; it is critical to see how soon the scheme can be implemented to get these projects out of the mess.

The government needs to ensure that projects that are stuck for fault of developers, i.e.: diversion of funds or fraud, do not benefit from the AIF scheme. Proper monitoring is a must to ensure sure that the money sourced from LIC and SBI are well-spent. The plan to rope in sovereign funds and other long-term investors will work well for the economy if the government indeed manages to do that.

Updated Date:

also read

Union Budget 2022: From widening tax base to growth-related announcements, what we want from FM Sitharaman
Business

Union Budget 2022: From widening tax base to growth-related announcements, what we want from FM Sitharaman

If India is going to break into the next generation of economic reform, there is a dire need for bold steps both on the expenditure and revenue sides

SBI SCO Recruitment: Application window for over 10 posts closes today; check how to apply here
India

SBI SCO Recruitment: Application window for over 10 posts closes today; check how to apply here

Interested candidates can apply for the vacancies on the official website of SBI - http://sbi.co.in/web/careers.

SBI CBO Recruitment 2021: Admit cards released; check details at sbi.co.in
India

SBI CBO Recruitment 2021: Admit cards released; check details at sbi.co.in

Applicants who have a graduation degree in any discipline or any equivalent qualification from a recognised University can apply for the post