Indian Realtors Bank On CPs

Indian real estate companies have taken up borrowings through issuances of commercial papers (CPs) after the country's central bank injected liquidity by slashing cash reserve ratio and as banks continue to shy away from extending loans. Realtors are resorting to short-term borrowings of funds to complete ongoing projects as the economic slowdown has virtually halted demand for properties, freezing cash flows. Issuances of CPs by real estate developers have jumped 66 per cent in the fortnight ended November 30 '08 compared to the previous fortnight, data released by the Reserve Bank of India (RBI) showed. Borrowings through the short-term instrument jumped to Rs 3,430 crore from Rs 2,065 crore in the corresponding period. Real estate companies are borrowing through CPs as they are able to raise funds at cheaper rates compared to bank loans. The public sector banks are lending to their best customers at an average rate of 12.5-13.5 per cent, while non state-run banks lend at rates as high as 17.25 per cent. Comparatively, real estate companies can raise funds through issuances of CPs at as low a rate as 9 per cent.
30 Dec 2008 Business Standard