Major public sector banks (PSBs) have issued letters to mall owners, citing contractual obligations under the Rental Rental Discounting (LRD) facility.
Fearing that these accounts could become non-performing assets (NPA), the PSOs ordered them to increase the invoices for the month of April and to ask their tenants to pay the rents in the escrow account of the respective bank.
LRD is a term loan offered on rents from rental contracts with tenant companies.
However, the decision was rejected by the Association of Indian Shopping Centers (SCAI), which represents more than 650 modern shopping centers and malls. The association estimates that the move will impact about 50 percent of these centers and could force them to default on payments, leading to NPAs of more than Rs 25,000 crore.
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The association also reported to the Reserve Bank of India (RBI) that the three-month loan moratorium it announced was not being offered to many mall owners.
In a letter to a commercial company, a bank stated that, under the conditions of the loan sanction, the rents were mortgaged for them and that the tenants of the shopping center had also submitted their letters of consent. Business Standard has reviewed the letter.
Banks have an exposure of around Rs.1 trillion to shopping malls and shopping centers, 75% of which is reimbursed by LRD or rental income.
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The SCAI says that most of the retailers in the shopping centers were unable to pay for their rentals due to the foreclosure in progress and some of them even sent “force majeure” notices to their owners.
Amitabh Taneja, president of the association, said: “Many shopping center owners have received letters from their banks invoking LRD obligations. They did not extend the three-month moratorium on loans, as announced by the Reserve Bank of India, which we purchased to the knowledge of the RBI. The industry will see huge NPAs if we don’t get a moratorium on our loans for between 9 and 12 months and job losses in millions. “
Taneja also points out that the industry, if it were to open in May, will take a long time to normalize, because consumers have less money to buy beyond the basics.
Shopping center owners get 85% of their rental income and therefore have very little leeway to pay the differential of the amount of money the banks receive from LRD.