BAR ON OVERSEAS (ECB) LOANS FOR REALTY PROJECTS MAY GO

Sanjiv Shankaran, New Delhi

Mint

The government will revisit its recent decision to stop companies borrowing abroad for real estate infrastructure projects in July because it expects to get a better sense of whether the central bank’s inflation-fighting efforts are working by then. The government decided to block the ECB route for real estate infrastructure projects to help the Reserve Bank of India slow down the growth of money supply, which took inflation to a two-year high.

“A high-level committee on external commercial borrowings will take a look at the policy in mid-July. It’s a temporary measure (the decision to block ECB route for real estate infrastructure),” said a senior official of the finance ministry who did not wish to be identified.

In a few weeks, the government would get a better sense of inflation levels and interest rate trend, which would help it, decide if ECBs should be opened for realty companies again, the official added.

Final data on ECBs comes with a lag of more than a month. When the high-level committee meets next month, it would also be able to access accurate data on the extent of overseas borrowing in there cent past for real estate, the official said.

ECB inflows surged in 2006-07 on the back of investment demand, touching $9.1 billion between April and December 2006. In 2005-06, ECB inflows were $2.72 billion.

Realty companies were allowed to raise money through ECBs provided the end-use was restricted to the development of integrated townships spread over at least 100 acres.

Data on the extent of ECB inflows to realty companies is not available and a senior executive of a realty company, who did not wish to be identified, said “it was not so much.”

“Not much money came in through the ECB route from pure lenders,” said Avinash Narvekar, partner at audit firm Ernst & Young.