The Reserve Bank of India is examining the books of ten real estate companies to verify their solvency and assess the systemic risks arising from possible defaults by these companies on various loans and public deposits.
Sources close to the development said the exercise followed concerns expressed by bankers over possible large-scale defaults in loans and deposits, which may have implications for the entire system.
The companies identified for assessment are DLF, Indiabulls Real Estate, Unitech, HDIL, Mahindra Lifespace, Peninsular Land, Ansal Properties, Phoenix Mills, Anantraj Industries and Akruti Citi Limited.
The exercise is currently an internal assessment based on available information in the public domain. RBI has also sourced data on loans, cash deposits and other fixed deposits held by these companies from all banks and mutual funds. Most of these companies have also borrowed through non banking financial companies (NBFCs) that they have floated, and the central bank is verifying the books of these related NBFCs independently.
The exercise, said these sources, aims at a comprehensive analysis of the data relating to these companies for determining the correct debt-equity ratio, solvency, state of liquidity to avert defaults, cash flows and profit margin in the current operations.
After the review, the companies or their NBFC arms may be advised to check exposure in line with cash flows, and banks may also be asked to cut exposure.
Sources said these real estate companies had raised long-term loans from banks and had placed commercial paper amounting to thousand of crores to raise short-term financing from the mutual funds.
The mutual funds, in turn, got a major part of the subscription to their schemes from the banks who held public deposits. This means a default on even a single commercial paper will impact the mutual funds, the banks and ultimately public deposits.
Large-scale borrowing has distorted the normal debt equity ratio for most of the companies and made them highly leveraged. RBI is of the view that the debt is being camouflaged in cases where the ratio meets standard norms.
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