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Cost of funds for realty firms may rise

Cost of funds for realty firms may rise

Reserve Bank of India’s recent measures to contain depreciation of rupee against dollar may raise cost of borrowing for developers and affect their ability to service debt, industry players feel.

It may be recalled that the central bank limited the daily borrowing of banks under its liquidity adjustment window
to 0.5 per cent of their net deposits against 1 per cent earlier.

Further, RBI mandated banks to hold cash equivalent of 99 per cent of the cash reserve ratio (CRR) with them against 70 per cent earlier. Both measures meant banks can lend less money.

Real estate developers feel that these steps could raise the cost of funds for them and it could also dampen sales volume.

With lower cashflows, developers could face problems with debt repayment and banks could face threat of NPAs, some developers said.

Some industry players feel that bank loans to real estate developers could even become non performing assets because of RBI’s move. Developers feel that they will have to battle shortage of liquidity in the near future.

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