about 6 months ago
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A work-in-progress realty project where the largest bank of India is a guarantor? Now that’s a sure winner, isn’t it? But the question is – why?

On Thursday, 9th Jan, Sunteck Realty was one bright star on the bourses. The reason – it had entered into an agreement with SBI under its newly introduced scheme - Residential Builder Finance with Buyer Guarantee (RBBG). This is to safeguard home buyers financially by issuing guarantee for completion of projects to customers availing SBI Home Loans.

How this works in simple terms- the builder/developer mortgages the project/land with SBI which in turn steps in as its sole banker. It will fund the project by giving the required loan to the builder and at the same time, will make it easy for buyers to get a loan to invest into the project. 10 months after signing the agreement, if the project remains stuck, the bank will refund the money which have spent till now to the homebuyer. The principal amount will be returned. One does not know yet it the interest rate on this scheme will be higher than the rest; maybe a premium for being a guarantor?

Not only are the homebuyers taking the loan from SBI but it is also ensuring that it will have a hawk eye on the builder – all the payments which he makes for the services, like the elevators, cement, steel, all materials required, will all be done through an SBI account.

Thus through RBBG, SBI is trying to achieve many objectives – obviously give an impetus to its lending but by having control over the builder and the project, it wants to ensure that it does not become an NPA and if it does, the bank and the homebuyers are protected first.

This is a great move by SBI. On one hand, it has opened up a new way of funding for the others to follow and on the other, but for itself, it can use its existing reach and network across the country to get RBBG going with multitude of builders/developers.

SBI being the largest bank, whatever it does becomes the benchmark. At this juncture one does not know if the other banks will also follow suit and introduce their version of RBBG but if they do, it would do wonders for the struggling realty sector.

More than the sops announced by the Govt, this one scheme can really get the sector out of the morass that it is in. But for that to happen, other banks will also need to follow.

For buyers, the biggest problem today is not money; it is the trust on the builder. The gnawing worry is that the builder will run away with their money or never deliver the project. Once a bank stands as a guarantor, the lost confidence can be regained.

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