Leading public sector banks (PSBs) have shot off letters to shopping mall owners, invoking contractual obligations under the lease rental discounting (LRD) facility for loan repayments.
Fearing that these accounts might become non-performing assets (NPAs), the PSBs have directed them to raise invoices for the month of April and ask their tenants to make rental payments in the escrow account of the respective bank.
LRD is a term loan offered against rental receipts derived from lease contracts with corporate tenants.
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The move, however, has been opposed by the Shopping Centers Association of India (SCAI), which represents more than 650 modern malls and shopping centres. The association estimates that the move will impact about 50 per cent of such centres and may force them to default on payments, leading to NPAs of over Rs 25,000 crore.
The association has also brought to the notice of the Reserve Bank of India (RBI) that the three-month loan moratorium announced by it is not being offered to many mall owners.
One bank in its letter to a shopping mall company has stated that according to the terms of loan sanction, the lease rentals are hypothecated to them and that the tenants of the mall have also submitted their consent letters. Business Standard has reviewed the letter.
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Banks have an exposure of about Rs 1 trillion to shopping malls and centres, of which 75 per cent of the repayment is done through LRD or the rental income.
chartThe SCAI says retailers in shopping malls have mostly been unable to pay rentals due to the lockdown and some have even sent “force majeure” notices to landlords.
Amitabh Taneja, chairman of the association, says: “Many mall owners have received letters from their banks invoking LRD obligations. They have not extended the three-month moratorium on loans, as announced by the Reserve Bank of India, which we have bought to the notice of the RBI. The industry will see huge NPAs if we don’t get moratorium on our loans for anything between 9-12 months and loss of jobs in millions.”
Mall owners earn 85 per cent of their revenues from rentals and therefore have very little leeway to pay the differential in the amount of money that banks get from LRD.
Fearing that these accounts might become non-performing assets (NPAs), the PSBs have directed them to raise invoices for the month of April and ask their tenants to make rental payments in the escrow account of the respective bank.
LRD is a term loan offered against rental receipts derived from lease contracts with corporate tenants.
ALSO READ: Brent price crash adds to oil chaos even as OPEC+ rushes to cut output
The move, however, has been opposed by the Shopping Centers Association of India (SCAI), which represents more than 650 modern malls and shopping centres. The association estimates that the move will impact about 50 per cent of such centres and may force them to default on payments, leading to NPAs of over Rs 25,000 crore.
The association has also brought to the notice of the Reserve Bank of India (RBI) that the three-month loan moratorium announced by it is not being offered to many mall owners.
One bank in its letter to a shopping mall company has stated that according to the terms of loan sanction, the lease rentals are hypothecated to them and that the tenants of the mall have also submitted their consent letters. Business Standard has reviewed the letter.
ALSO READ: Moratorium-linked uncertainty puts debt mutual funds in jeopardy
Banks have an exposure of about Rs 1 trillion to shopping malls and centres, of which 75 per cent of the repayment is done through LRD or the rental income.
chartThe SCAI says retailers in shopping malls have mostly been unable to pay rentals due to the lockdown and some have even sent “force majeure” notices to landlords.
Amitabh Taneja, chairman of the association, says: “Many mall owners have received letters from their banks invoking LRD obligations. They have not extended the three-month moratorium on loans, as announced by the Reserve Bank of India, which we have bought to the notice of the RBI. The industry will see huge NPAs if we don’t get moratorium on our loans for anything between 9-12 months and loss of jobs in millions.”
Mall owners earn 85 per cent of their revenues from rentals and therefore have very little leeway to pay the differential in the amount of money that banks get from LRD.
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