@visuarchie sir, sorry I’m new here, I keep checking the update for entry this week (both in the Microcap & Smallcap threads). Kindly let us know if there’s any issue.

RBI proposes tighter project financing rules for long term under construction projects

Today , Stocks of NBFC’s and Banks engaged in long term.project financing are down today reacting to the news of the RBI draft proposal seeking higher provisioning for under construction projects , even if the asset is a standard asset Class.
The initial provisioning of 5% can be reduced to 2.5% and then further to 1% on subsequent years as the project progress successfully.

While the draft seeks suggestions from all stake holders , i think it is good for the overall health of the financial system in the long term since it should not come as a surprise as a large chunk of money for provisioning all of a sudden in case of under construction projects becoming NPA at operational stage due to various reasons. In the short term during initial period , it may impact bottom line of NBFC & Banks to the extent of exposure to long term project financing, though the providing can be reversed back during subsequent years of the project continue to be standard asset without NPA.

Thanks for your feedback. We have different point of view , I disagree but dont dis-respect

My views below:

“Well, residential real estate has different equation. Residential rental return is expected to be low with relatively higher capital appreciation”

Probably, this is precisely the hypothesis based on which residential real estate is bought. However, I fail to understand how capital appreciation can be high without healthy rental appreciation as both are very much co-related in long run.

Residential real estate moved 10 to 20 X in most part of india between 2000-2010. In fact, as kids we knew buying home as most prudent decision of our parents .

Probably that bull run is embedded in our psyche (me included), but if you look at 10 year period (2012 to 2022), residential real estate prices moved nowhere in most tier 1 cities. Capital appreciation is in the hands of market, and difficult to predict.

Real estate is cyclical play, best time to buy is when rental yields are respectable, irrespective of residential or commercial.

Note that these are my personal views, may turn out to be wrong / foolish in future.

(post deleted by author)