Ministry of Finance (MOF) or SBI authority plan priority positions for real estate under AIF

To strengthen stalled housing projects, SBI and Ministry of Finance plan priority positions for real estate AIF

Government, SBI and LIC contribute Rs 25,000 crore for Alternative Investment Fund to fund the delay in real estate projects. After the completion of the phase, an alternate fund of Rs 25,000 crore to provide funds for the delayed housing projects in phases.

Real estate projects which are in NPA or NCLT can also be funded by an alternative real estate fund of Rs 25,000 crore.

AIF to allow priority loan financing to complete delayed housing projects.

The State Bank of India (SBI) and the Ministry of Finance (MoF) are exploring a legal framework, where the assets of companies receiving funds with suggested Alternative Investment Funds (AIFs) to strengthen delayed housing projects and The first charge will be on cash flow.

It will finance 1,600 delayed housing projects carrying 4,58,000 housing units across the country. This step is to create employment opportunities as well as improve the demand for cement, iron and steel industries.

The government will put Rs 10,000 crore into this Alternative Investment Fund(AIF) while SBI and LIC will provide Rs 15,000 crore, taking the total size to Rs 25,000 crore.

It aims to relieve stress in key sectors of the economy. The size of the fund will increase as sovereign and pension funds are expected to participate in this AIF. AIF can also be used by projects that are declared non-performing assets or facing insolvency proceedings.

Changes may be made to the Insolvency and Bankruptcy Code, 2016 (IBC) to incorporate the lenders' seniority concept, which is not currently adequately recognized in the Insolvency and Bankruptcy Code (IBC) in its current form. According to sources, the Ministry of Finance (MoF) has referred the matter to the Law Ministry.

SBI, the country's largest lender and its arm, has been instrumental in arranging the SBI Capital Market Fund, and is approaching other banks and financial institutions to participate in AIFs - private joint ventures like venture capital, private equity Regulatory languages ​​and real estate funding for agencies.

By law, a bank may invest up to 10% of the Alternative Investment Fund(AIF) fund.

Therefore, the SBI is maximum Rs. Will be able to invest in 2,500 crore in the fund and asked other institutions to join the suggested Rs. 25,000 crore fund comprising the government Rs. 10,000 crores Rs. Addressing the AIF as a senior status among lenders may make it easier and easier for other banks to invest in it.

Under the scheme, the fund will come back when lending to a company that its seniority should be part of the inter-creditor agreement. If the company fails to recover and is subsequently declared insolvent. In this situation, the COC will have to identify the most senior charge among all lenders. If the company is already facing bankruptcy under the IBC, the COC will have to address the AIF and keep the seniority of the charge.

Currently, the IBC has made a provision for raising interim finance by the resolution professional after requesting approval from the CoC. 

RBI's 25 BPS repo rate cut will not reduce EMI on home loan

After the announcement, the repo rate is 6.25% and the reserved repo rate is 5.15%. This rate cut is the first time in these months. The last rate cut was in October 2019.

This is good news for borrowers. The RBI's decision to reduce the repo rate from 25 bps 6.00% to 5.75% and change the mindset to "neutral" will boost the economy, provide affordable loans to small businesses, home buyers etc. and at the same time, This will promote employment opportunities.

Usually, when the RBI cuts the repo rate, banks usually provide benefits to the customers. If banks decide to cut the rate, home, auto and other loans are likely to be cheaper.

Impact of the Repo Rate cut on Home Loan EMI

Now that the RBI has reduced the repo rates, the EMI of your home loan is likely to be affected, assuming that the banks will pass it this way:

for example:-  (Below details are not fixed, these are flexible with current rate)

Loan Amount (₹): ₹ 8000,000

Tenure (Years): 20

Current Interest Rate (%): 9%

Current EMI (₹): ₹ 71,978

When you visit banks for bank loans, they tell you in detail about two types of interest rates i.e. MCLR rate and base rate. As a borrower, here is your EMI likely to be affected by both rates.

Existing borrower under MCLR rates :- Existing borrowers whose loans are linked to the MCLR rate will get a benefit on their EMI "Equated Monthly Instalment" by reducing the bank's MCLR. But only after the reset date of the loans can one get the benefit.

Existing borrower under Base Rate or BPLR :- This is a good opportunity for borrowers whose home loan is still under BPLR or base rate, they may consider converting their existing home loan to MCLR regime to get interest rate benefit. The MCLR and the new external benchmark based governance provide transparency in the transmission of policy rates as compared to the Base Rate and BPLR interest rates. This is why most people go for MCLR and a new external benchmark based regime

Repo rate :- This is where RBI "Reserve Bank of India " lends money to commercial banks.

MCLR Rate :- MCLR "Marginal Cost of Funds based Lending Rate" refers to the minimum interest rate that the bank will charge on the loan; It cannot lend below this rate.

BPLR Rate :- BPLR means "Benchmark Prime Lending Rate". The BPLR was the interest rate offered by a commercial bank to its most creditworthy customers.

Apex Bank :- It is an institution that manages and maintains the money supply, inflation and interest rates of a country. It controls the commercial banking system and acts as the watchdog and regulator of other banks in the country. The Reserve Bank of India (RBI) is the apex monetary institution that controls the Indian rupee, monetary policy and banking system in India.

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