LRD is a globally popular credit instrument offered against rental receipts. This will likely ease the funding crunch in the real estate sector hit by the pandemic.
The bank will create a separate team and infrastructure for this service line. Citibank did not respond to ET’s query.
One of the persons mentioned above said, “The average tenure of an LRD can be in the range of 5-7 years.”
LRD continues to be a major focus area for Citigroup globally. However, it is not in the product kit for India. With the transformation of India’s business, this could fuel Citi’s growing institutional outlook.
The contribution of the real estate sector to India’s GDP is projected to grow to around 13% by 2028. Developers are finding it difficult to arrange funds at a reasonable rate. Structured products like LRD will ensure liquidity for the sector in future. Banks have traditionally been risk averse in giving builder loans.
Many people own and lease commercial spaces. ICICI Bank, the country’s largest private lender by asset size, offers LRD loans at interest rates starting from 8.85% p.a. In addition, non-banking financial companies like Bajaj Finserv also offer LRD credit.
Riding on a lower base of the current fiscal, gradual return of tenants in offices, and improvement, net leasing of commercial office spaces across the country is expected to grow by 12-18% to 25-30 million square feet (msf) in the next fiscal. Chances are. The macroeconomic situation, a Crisil said in a report earlier in the year.
In India, LRD is generally obtained by developers and owners of office and retail real estate projects. Of these, retail malls alone have garnered over Rs 70,000 crore through this route across the country. This financing model is expected to continue to grow as it is an attractive option for project owners to support their high capital expenditure requirements at a relatively low cost with the help of their existing cash flows and tangible secured assets.