The Indian real estate sector is in a real mess. Hardly a month has been passed since the PMC Bank depositors were left deprived of their money and even Yes Bank's financials was in shambles. All due to one real estate giant called HDIL which not only promptly defaulted on their loans but also committed a great fraud by creating several fictitious accounts to receive this loaned money in the first place.
India's other real estate companies aren't any good either, this sector is in need need of great reforms. In fact, NPAs in the real estate sector by builders form the majority of NPAs in most troubled banks today. But should the reform come in the form of a bailout package of ₹25,000 crores at the taxpayer's expense?
Bailing out these troubled real-estate companies is like throwing good money after bad, all its going to do is increase the NPA situation which is already disastrous. Besides, the fear is that if the govt. simply bails out these builders, it'll send a very wrong signal to them. There will be no incentive for them to finish projects on time in future, they might simply stall their projects on their own in order to earn bailout packages by the govt.
Also, if the govt. really has 25,000 crores to spend right now, why not use it to compensate the poor depositors of PMC Bank? While its true that the govt. shouldn't generally intervene in the markets, spending this money to help individual depositors would be a great achievement from at least a socialistic perspective than simply adding it to the growing amount of NPA where it'll neither wipe a deprived person's tears, nor help anyone.
Do you think the decision to bailout builders in this manner was right? Please let me know in comments.
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