The government on Wednesday announced a package to ease the financial stress on construction companies, including a possible loan restructuring package for the realty sector — a move that could prompt property developers to resume work on stalled projects.
"The department of financial services and the RBI will try and prepare a policy on how to deal with those companies which have got a lot of stressed assets in the real estate sector. We hope that a series of these decisions would pump in a lot of liquidity in the sector, activate a lot of real estate and infrastructure projects which have been stranded for some time and support the entire process of dispute resolution in relation to construction and real estate," finance minister Arun Jaitley to told reporters after the Union cabinet cleared the package.
The package prepared by the NITI Aayog seeks to ensure release of 75% of funds locked up in projects where an arbitration award has been made in favour of a construction company. In case where the award has been challenged, agencies such as National Highways Authority of India would transfer 75% of the award amount into an escrow account against margin free bank guarantee. This amount can be used to repay loans and generate liquidity besides easing the burden on companies.
There is gain for individuals too as some of the real estate developers have delayed delivery of projects citing lack of funds.
In case of construction companies the government has sought to speed up the arbitration process, Jaitley said. Public sector companies and the government would seek the consent of contractors to transfer cases initiated under the earlier law to the amended act.
And, to avoid a build-up of cases in future, the government also wants its arms to set up Conciliation Committees to ensure speedy disposal disputes.