Saturday, March 14, 2009

RBI verifying solvency of 10 realty firms

Click on the image for a better view of the crash in housing construction companies stock prices. Once the RBI report is out, we will get a better picture of the construction industry.

Business Standard reports
Anindita Dey / Mumbai March 14, 2009, 0:25 IST

Internal assessment follows banks’ worries over systemic risks.

The Reserve Bank of India (RBI) 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 Ltd.

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.


Venkatesh Babu K R said...

Banks should take the properties from these developers and sell them to public at a reasonable rate + profit for the banks ...

Hope RBI takes action in this direction.

RE Hawk said...

I agree with venkatesh babu. Wait till couple of months and hunderds of flats mainly by investors with multiple units many from IT who invested during boom time will tumble into market place for auction by banks who have repossesed the houses as they have defaulted on payments of EMIs. already if you enquire many such auctions are taking place with public sector banks and this will gain momentum this year as things can only go down more and further erosion of the original property worth means that banks realise that it is better to sell at some loss and recover the money rather than wait and see the value go down further. ICICI especially lent recklessly (desi subprime kings), and their balance sheet is bleeding no matter whether they acknowledge the same or not.

Cool Head said...

There definitely seems to be a real flux in the property prices that are listed for sale by sellers. However prices are waaay too high. Recent ads in the Times Classifieds
1. 2 BHK at Siddhachal Complex, Pokharan Road No 2, Thane- 50 lakhs
2. 3 BHK at Raheja Gardens, Teen Hath Naka, Thane 1.05 crores
3. 2 BHK at 15th Road Khar- 1 crore
4. 2BHK at Andheri- 65 lakhs
It means that for the price of a 2 BHK independent home in California, you can only get a cramped 3 BHK at Thane!! What a joke. No wonder people say that hardly any flats seem to have been occupied in Raheja Gardens. The building anyway looks horrible like a chawl from the 60s.
So there is a lot of leeway for falling. I wonder how long will Raheja take to reduce his prices.
Meanwhile new bookings have been started in Mulund at Rs.4500/- by Nirmal. Wonder who will bite?

K DAYALADS J said...

March 14, 2009

Respected Sir,


Re: Indiabulls implicated thousands of youths in bogus cheque bounce cases in New Delhi Courts to extract extra money, bringing poor borrowe near to sucidal point.
Re: Complaint against Indiabulls Financial Services Ltd. F-60, 2nd floor, Malhotra Building, Connaught Place, New Delhi- 110 001.
Ref: Loan Disbursal No. S000179323 (Rs.27,342/-)

I would like to bring to your kind notice that I had taken a loan amount of Rs. 25,601/- from M/s. Indiabulls Credit Services Limited (Indiabulls Financial Services Ltd.) by cheque bearing No. 431950 dated 25/5/2007.

The said company had obtained from me 10 blank cheques as a security for the said loan amount.

Sir, I had made the payment of monthly installment of Rs.1800/- continuously for 10 months, but due to sickness of my mother who was admitted in ICU, in hospital I couldn’t make the payment of one month viz. June, however their recovery officer Mr. Mahatre & Ramesh Patil collected me part payment of Rs.1000/- on 30/6/2008 and allowed me to make the payment of next ESC by cash.

It is highly regretted that without any intimation to me, the above said finance company has deposited one of my blank cheque bearing No. 78870 by filling the false amount of Rs. 28,249/-thereby the said company has misused my cheque and in spite of my efforts to solve the dispute I offered reasonable amount i-e pending principal amount & interest amount . But to extract extra amount from me Indiabulls filed bogus cheque bounce case against me in Patiala House Court, New Delhi. Against the loan amount of Rs. 25,601 on 25/5/2007 I had already paid Rs.22, 600/- and as it is very tough for me to defend the suit in NEW Delhi traveling from Mumbai, finance company black mail me and forcing me to pay more Rs.33208/- plus uncharged interest. To extract extra amount from me finance company tactically implicated me in cheque bouncing case. Finance company filed thousand of cheque bounce cases of Maharashtra youth in New Delhi Court.

At he time of handing over the loan amount cheque to me they given me loan disbursal letter dated 25/5/2007 , that contained only details of Loan amount , and EMI amount of Rs.1800/- they purposely not mentioned the details of rate of interest or number of EMI or tenure of loan period. They have taken the signs from me on printed agreement which contained several unfilled blanks in respect of very material terms; they misused loan agreement by filing false details of number of EMI from 24 months to 30 months ( i-e rate of interest 60 % per anum which is usurious ). They also promised me at the time of loan agreement that after 6 months, they will reduce the interest amount by giving me TOP up of my loan, even in first six months not a single EMI was bounced by me but even they turned up from their promises.

Further to bring to your kind notice that as per my Bankers accounts statement , the above said company has received all the monthly installments , for which I showed and submitted them the Xerox copy of my banks statements. It is highly regretted that in spite of that the recovery officers of the company are pressuring me for the payments of such two installments which were cleared by me and have been giving me notices. insulting me , and harass me, their recovery agents frequently had been visiting my home even my absence and talk rough with my family members.

I made this complaint to RBI, but regret to state that RBI not taking matter seriously and does not investigate my complaint. Whole system is working with Indiabulls.

Being aggrieved, from the above said attitude of the company I hereby approach you with a request to kindly intervene and get me relief from such unwanted situations, for which I shall remain highly obliged.

Thanking you,

Yours faithfully,

K Dayaldas J

Encl: copy of letter to RBI which is self explaintory.

Department of Non Banking Supervision,
Reserve Bank Of India ,

Dear Sir,

From last more than six months, I approached Department of Non Banking Supervision, RBI by writing several letters, Emails, Reminders, Telephone calls to Mumbai & New Delhi. In my complaints I had given details of how Indiabulls misguided me on rate of interest, how company denied the receipt of payment even debited from my bank, how Indiabulls misused my blank signed security cheque and misused blank signed Loan agreement by filling false figures of number of installments, filed bogus bounce cheque in Patiala House Court, New Delhi and also informed Apex Bank RBI that Indiabulls not only harassing and torturing me to extract extra money from me and but also doing with thousands of other poor borrowers and in there are number of reports in news paper about the suicides by borrowers for harassment by finance companies.
In first six months I learnt through Right of Information that instead of taking any action against Indiabulls the only action RBI did was RBI had asked response from Indiabulls. In my complaints I requested RBI number of times to proper investigate of my complaints. Indiabulls in reply of my complaints given totally false information and I am shocked RBI not found any thing irregular of finance company and RBI has given clean chit to company.

Indiabulls in reply in their letter dated 2/2/2009 and claimed that they are prestigious organization in the field of finance practice highest standard of transparency in its business , company strictly follows Rules , Regulations and all Regulatory Guidelines , company works under the Guidelines laid down by RBI , I am attaching herewith the some of clipping of some of articles published in leading national Newspaper giving information about Court Order against Indiabulls and news on alleged Cheating, criminal breach of trust, criminal conspiracy of Indiabulls which prove false of their tall claims.

1.Delhi High Court refuses to stay investigation against Indiabulls officials.

2.FIR against Indiabulls for illegal transactions.

3.Financial Services Firm in the Dock

4.Despite SEBI inquiry , Court allows FIR against Indiabulls.

5.Investors allege shares worth of crores vanished from their Indiabulls accounts in blink.
6.Indiabulls asked us to fake it.

7.IPO Scam , What, When, Who and How ?

8.Indiabulls , Forts undergo Income Tax searches.

9.Fraud : Indiabulls men booked.

10. Indiabulls Co. charges 4.5 Crores Service Tax on Fake registration number.

11. Indiabulls Retail not paying some vendors.
12.Indiabulls to pay up Rs.35,000/- as compensation.
13.Pay us our dues now.
14.Vanished Funds.

Indiabulls Financial Service Limited, misguided me by giving letter dated 25/5/2007 (Xerox copy already submitted with RBI) at the time of loan disbursal which reflects only loan amount and EMI amount, they intentialy not disclosed the tenure of loan period or number of Installments. And at the time of loan agreement they confirmed me number of EMI would be 24 but they misused my blank signed agreement and filed the false figures 30 which calculate to rate of interest 39 % ( 60 % reducing , which is usurious without doubt)They intentialy kept blank annualized rate of interest % p.a.

Even repeated demand of loan agreement they still not supplied me copy of loan agreement and they falsely claim that they had given me loan agreement copy.

Indiabulls claim false that I had made 11 installments but fact is that I paid 12 installments fully and I also paid Rs.1000/- cash to their recovery staff Mr. Patil & Mahatre And they had acknowledged this in writing. One of EMI was debited from my bank on 1/9/2007 but Indiabulls denied the receipt. Even though submitted Xerox of bank statements number of times ,confirmed this to their staff by taking them to my bank about the debit of ECS on 1/9/2007 but still they issued me notices, insulted me, and harassed me. ( Annexure IV- page 3-3 reflects that I informed Indiabulls about debit of ECS on 1/9/2007) .Indiabulls misused my blank cheque by filing false figures of Rs.28,249/- and deposited cheque without informing me , I tried level best to settle the dispute by offering pending principal amount and reasonable interest amount but to extract more money from me Indiabulls filed bogus cheque bounce case in New Delhi to harass and torture me. ( Copy of emails as Annexure 1 and annexure II attached herewith.)
Honorable Courts number of times ordered financial companies not to file loan recovery amount tactically by criminal penal code instead of Civil (Annexure III), but Indiabulls tactically implicated me in false cheque bounce case and filed suit in Patiala House Court , New Delhi. Indiabulls filled thousand and thousand of cheque bounce suits in this manner in New Delhi Courts.

Indiabulls action caused me mental agony, harassment, deficiency in services.

Instead of technically diluting my complaint ,I once again request RBI to look the matter seriously, investigate the issue raised by me in my complaints.

In Maharashtra and in India the number of cases of suicides are increased due to harassment and torture by some of financial lenders . I hope if RBI takes strict action on complaints the number of suicides cases come under control.

Thanking you,

Yours faithfully,

K Dayaldas J,prtpage-1.cms

Bounced cheques choke Delhi courts

Bharat said...

Dear K Dayaldas J,

This sounds like a horror story. I hope you are holding on without much stress and am sure you will get some restitution and relief in the very near future.

In India we do not have a consumer forum to address such cases. If we can get some Consumer Action Committee then Companies like IndiaBulls will think ten times before attempting these kinds of frauds time and again.

To me in addition to the earlier post by Vik on EMI's and this one, the moral of the story is to avoid debt by a bargepole in India. Pay in full as far as possible. Plus signing blank papers and blank cheques is a definite no-no!! no matter what the inducement.

If they have forged the cheques, then handwriting experts (there are police certified independent experts also) should be very easily able to verify this.

Hope you get relief from this soon.


Anonymous said...

Wait until the end of LokSabha elections. As per the news Rs 10,000 crore (more than US presidential elections) will be spent for election campaigning and politicians have already started unwinding their positions in real estate markets.

Of poll, pelf and politicians

According to this intelligence source, son of a senior state leader visited Raju one day and told him to give him the funds that he had invested in Satyam Computers. Raju, told him that he could not return his money which had been invested in the real estate sector. And, after it had tanked there was, one, no buyer for the land. Two, there was no way money could be retrieved by selling land.

This influential relative of a politician would not take no for an answer. It may sound apocryphal, but according to this source, he allegedly beat up Raju and told him that if he did not show up the money quickly then a worse fate awaited him and his family.


Anonymous said...

Indian BUST gathering some momentum now.
W/ tech,BPO coolies in a funk, finance & stock guys in a swoon and indian GDP staring at 2-4% in next 5 yrs, mungerilals' dreams are crashing hard.

Vik said...

No one will buy at prices over 3,500-4000. Money have vanished from the system. No bank will lend to a salaried employee loans in excess of 30L. Only people with black and rich NRI's can buy. Question is why will anyone with cash in hand(read RICH) buy in Thane and Mulund. Weren;t those confined to the middle-class. High interest loans is the mechanism of transferring future wealth to the banks. In the US loans are at 5.5%, when they reset to 8% we have foreclosures. In India loans start at 10% and have gone up to 13.5%. The increase in interest payments itself will greater then the principal. I don't understand the logic of investors who buy 1 crore properties at 11% interest with 10% down. They are going to be crushed, that is, if they havn't already gone under the bulldozer.

40-50L is the cap. When you buy a car, you don't pay extra because someone else has booked it. The premium is only valid when there is shortage. Now there is a glut. So enjoy the distress sales.

Anonymous said...

Repeating old comment published on Dec-26 “Builders ask govt to buy unsold flats"”
The below content is not only important to Real Estate Buyers but it’s very important for every Citizen Of India.

As per the RBI analysis, they found bubble in real estate in 2006 & consequently asked banks to reduce the exposure to this sector. Banks tightened the lending norms gradually since 2007.
In 2008, when the bubble has reached at its peak, why RBI is relaxing the lending norms to real estate? It’s a clear sign of systemic corruption in India. Yes, the finance minister asked the RBI to do so. What will be the implication? The toxic illiquid housing debt will come on the balance sheet of Banks which will cause a Banks failure in India same as US. [ Banks will lend money to buyer to buy the house at inflated price , buyer will default & as the house price is much below even after liquidation bank will incur losses.]

Once banks will start failing, whole economy will be in trouble. Then under the pretext of economy saving, they will use tax payer money & print money to save these banks.
What is the effect of printing money? It will increase the inflation & every one has to keep paying high taxes to support the housing which they never bought. Cause on your rupee note the Governor of RBI has promised to pay the debt, on your behalf but without your consent.

If your will compare the scenario, it’s a same as US but one major difference. In US when the bubble busted at that time the housing assets were on the bank’s balance sheet. The real estate companies managed to sell majority of the assets to home buyer who took housing loan. So it’s became problem to Banks & home buyer.
NOTE: There is no Major real estate company failure in US.

But in India still lot of housing is owned by real estate companies, who are desperately trying to pass on this toxic to buyers & banks. The RBI policy change is nothing but the corrupt political decision for builder.

Even after the policy change the greedy Builders were not satisfied & they are demanding to Govt. to buy the pending houses which cost 50 Lakh & above out of public tax money or by printing more money.
--DLF is demanding 8% interest rate. Is DLF is going to decide interest rate in this country? Interest rate is used by RBI to fight against inflation.
---When inflation is still at 7%, why RBI is easing the liquidity?

Guys, please pass on this information to every body & stop the systemic failure in Economy. The systemic failure in economy will result in dire consequences like great depression.
Page# 312 to 314

This is a request to VIK please post it on the front page. It’s not only for real estate buyer but for every citizen of India.


Anonymous said...

MR.Dayanand please note that giving blank signed cheque was the biggest mistake you commited i this case. People only give post dated (with amount filled) to any company or persons. It will be tough for u to take a legal stance against the company after u have written blank cheques to them. Check with a lawyer about your case and see if any legal steps can be taken.

Kapil said...

Kapil is back here and could not stop myself to comment on some story running at

People comparing Japan Housing Crash to India Housing Crash.

After you read all the part( I to V) you will see rate at peak ( 1989) in Japan were $139,000 per square foot. Currently they are $13900 per sqft ( 2005) for same.

Now, let us compare that with India. Here luxry apartment are running at RS 4000-12000 per sqft.

Is there any comparasion betwnn
$13900 ( Japan now) vs $300 ( India best luxry apartment).

Author highlighted that "One must not forget that in 1995 the per-sq-ft rates for homes were the same as in 2006."

I can tell you that you will not get 50% price cut in India. Give me proof who is selling at 50% discount. I have been talking to some builders and even 30% cut are rare.

Any comment without bias please?

Anonymous said...

Why RBI started this drama, when it was clear that RE is going to create a systemic risk to economy?
4 months before it was clear that RE will create a systemic risk & RBI is responsible for this mess. Please read the above comment published on 26-Dec.

Do you think RBI or Govt. is more worried about economy? If yes, why they extended the loan to insolvent RE & propped up the bubble?
In last week’s G-20 Financial reform meeting , G-19 asked India to save the NBFC(non bank financial companies) & RE ,where G-19 investors speculated huge money in the form of Hedge fund, Private equity, Foreign direct Investment & other exotic instruments.

How the NBFC raised money?
When the prevailing interest rate in India was high, how some Institutes were able to raise money at lower interest rate? Through Foreign Banks & non bank entity, at LIBOR rate or promising hefty returns to funds. Thanks to Global credit crisis which has reduced the foreign speculation.

Please save the economy by pinching the bubble.

So guys let it fall then only pick up, minimum 50% price cut is guarantee.


Anonymous said...

Kapil, there are two sides to look at price. At what price seller is ready to sell the property & at what price buyer is ready to buy. If both party do not agree on the price,
it means price need a correction. If there is no buyer to an asset it is classified as insolvent asset & normally such assets are sale in auction which is the price discovery mechanism. The auction is not a new concept, stock market works on Dutch auction basis.

Just by talking with builders, you will never come to know the price cut, you need to show a genuine interest to them. Then have a couple of rounds of negotiation, then you will get the price cut.

So guys let it fall then only pick up, minimum 50% price cut is guarantee.


Kapil said...

You might get 50% cut promise from junk builders. Those builders will not finish incomplete project.

Good builders AND Good project are not offering more than 10-15%.

Having said that you know which builder is good? My choice is 15% discount since this builder is going to complete project. 50% cut is false promise don't get trapped.

Anonymous said...

Dear Kapil,
If you really think 50% will not happen, then go ahead and buy your property. And also advise your relatives and friends to do so. No one is stopping you to buy if you really believe in yourself.

My experience with the US market is that the builders all over are sitting on big cash reserves. They will drop prices only when it is really necessary for them. It is like the oil cartel. IN US, builders are giving options free but the base price is still not what it should be.

The decline process is going to be very slow. It may take around 2-3 years easily for you to see 50-70% drops in prices. I waited since 2003 in US to buy a house. In the last 5-6 years I saved enough cash that I ended up buying a house last week at 65% below its peak price in 2006. My neighbours paid close to 850K dollars for their houses and I got mine for close to 305K dollars. This is in the suburbs of Washington DC, US capital. My neighbours are jealous and now I don't even tell anyone how much I paid for my house. I would also never tell any neighbour that I paid cash for it.

If you also want to enjoy a similar feeling, just wait and watch the downfall. Keep your cash. And make sure your job is safe. In a few years you'll be living in a house at 60% discounted price from its peak in any metro of India.

I also used to get pressure from my in-laws(now out-laws), my own parents friends etc. to buy a house. Now, everyone says that I was smart to wait. Do you also want to look smart??????


Kapil said...

For KB:

>My experience with the US market is that the builders all over are sitting on big cash reserves

I think you have unique experience... Name me one US builder who is sitting on cash? They all are surviving hard and some of them will go belly up.

Home in my neighborhood are hardly 6% down. There are some 20-30% down homes in some other communities but I am scared to go those areas. You cannot send your kids to those schools.

There is no point talking back and forth. When we used to solve mathematics problem we used to ignore noise. Noise means any data which is not close to standard deviation since that does not represent trend.

I can get home in $10,000 in Detroit? Is that a US trend, NO?Am I going to buy it, NO. because I am not as smart as you...

True line is some where in between.
In India it is 10-15% down. I personally feel bottom should be around 20% down. I am talking about good projects. You can get house for 60% down but that is not trend because original price of that house was not a trend either.

Hope that make sense to you.

Vik said...

Good job on the price. However why did you not take a small loan. No point in paying cash down on the house when you can get financing at 5.5%. You can deduct the interest so effectively you are paying a very low rate of interest and you can put your capital to work in a Vanguard total index fund. I'm wondering apart from the emotional aspect of having a fully paid down house, why did you put buy at cash down ?

Anonymous said...

I think you missed the enormity of the crisis.

No one asked to book an apartment in newly launched project. Buy about to
complete OR completed apartment.

Can you describe the good projects with locality? We will like to understand what is more competitive than “Unitech Grande” or south B’bay property.
The so called good project Purvankara-Banglore screwed the customers royally; refer the true story on the same blog.
Another fact is that, Luxury apartment has corrected more than affordable housing.

--In Pune Paranjape Builder had a reputation to deliver apartments before time. But in the Blue-ridge town ship project when cancellation happened, they even didn’t returned the money till they got another sucker.

--Where was this goodness when DLF, Unitech, Parshvanath etc. are not delivering the projects on time?

There is no good & bad, you have to be a smart.

“Market do not follow normal curve.” By Paul Volcker.

Learn when to apply which formula.

So guys let it fall then only pick up, minimum 50% price cut is guarantee.


Vik said...

I think Vulture's 50% has to be qualified. I think top tier builders will demand a premium price in any location or any market. There is not point in comparing finished product of Hiranandani/Brigade/Prestige to unknown builders. I think the affordability will be a bigger factor in this economy. Personally I would like to see Bandra in Mumbai at 8k rs. However even if that happens I dont expect Hiranandani in Powai to price it at 5k. Pricing logic is wierd.

Anonymous said...

For Vik,
Paying down made more sense in my case. Due to AMT and other tax limitations on Schedule A, loan was not making sense. Moreover, there were unnecessary closing costs. ALl my 3 cars are paid off, I have no loans except that we would be upgrading my wife's Merc to E350 this year. I also looked at the opportunity costs and returns on bonds and treasuries, paying it off made perfect sense. Now if it was an investment property, I would pay down no more than 20% to avoid PMI plus the rent would pay the mortgage.

Right now I'm looking at all the exotic furniture and waiting for the downturn in India. When the prices are 150X (X being the monthky rent in India), I'll purchase 3-4 flats around Vasant Kunj area in Delhi. Maybe I'll be able to retire early.

Kapil: Builders have made their money and have a lot of money. All over in US and in India, builders are smartass. Their balance sheets show they are bankrupt but they are swimming in money.


Anonymous said...

@Kapil - 11:19 AM

The $139K per square feet price was the highest price quoted for a commercial property (that's a world record) and that does not mean average property price .

By comparison, in Mumbai Bandra Kurla complex, price went as high as $25K at its peak.


That is 1 to 5.56 ratio.

Compare that to nominal (since we are using absolute figure here) per capita income in India is $941 verses $34,296 in Japan (source: Wikipedia)

That's a whopping 1 to 36.4.

So are you saying that you really suck at maths and logic or are you one of those fu****g real state crook who have played a big part in this whole scam?

You had your time, now is ours.

[vulture]So guys let it fall then only pick up, minimum 50% price cut is guarantee.[/vulture]

GK said...

Please cool down. Lets keep this place neat and clean.

Market is the place for bulls and bears. Lets not shut out one for the other.

Anonymous said...

Another relevant Article

Realty Sector Under Scanner

RE Hawk said...

Another article on realty decline especially sobha builders- one of the top in south India

David N said...

This is absolutely necessary. Companies had mopped up thousands of crores thro IPOs. They have diverted money from projects and bought thousands of acres of land to build land banks. This diversion is killing them since land value has crashed an the assets are illiquid. Also banks would have funded on the basis of exorbitant land value which now remains in dumps. Banks, Inventors and also the buyers are at great risk since these companies can collapse anytime. They will be dressing up balance sheet with non existent sales figures to stay alive. For example, DLF has recently launched project in Hyderabad at 1850/sft and tied to take quick booking. The land was bought at sky high rate of 12 crore per acre in inaccessible remote location. The land remains in litigation while DLF had no hesitation in paying the Govt agency money since money came cheap through IPO.