Citibank to offer lease rental discounting for commercial real estate companies

Citibank India is planning to introduce Lease Rental Discounting (LRD) for top commercial real estate companies in India as it aims to strengthen the focus on institutions while exiting the retail business, two people familiar with the matter told ET.

LRD is a globally popular credit instrument offered against rental receipts. This will likely ease the funds crunch in the real estate sector, hit hard by the pandemic.

The bank will be setting up a separate team and infrastructure for this service line. Citibank did not respond to ET’s query.

“The average tenure of LRD may be in the range of 5-7 years,” said one of the persons cited above.

LRD remains a key focus area for Citigroup globally. However, it is not in the product kitty for India. With the India business going through a rejig, this could well give a boost to Citi’s growing institutional approach.

The real estate sector’s contribution to India’s (GDP) is estimated to increase to about 13% by 2028. Developers have been finding it tough to arrange funding at a reasonable rate. Structured products like LRD will likely ensure liquidity in the future for the sector. Banks are traditionally risk-averse in extending builder loans.

Many people own commercial spaces and offer them on lease. ICICI Bank, the country’s largest private lender by asset size, offers LRD loans at interest rates starting at 8.85% per annum. Besides, non-banking finance companies like Bajaj Finserv, too, offer LRD credit.

Net leasing of commercial office spaces across the country will likely expand 12-18% to 25-30 million square feet (msf) next fiscal, riding on a low base of the current fiscal, a gradual return of tenants to offices, and improvement in the macroeconomic situation, a Crisil said in a report earlier in the year.

In India, LRD is usually availed of by developers and owners of office and retail real estate projects. Of these, retail malls alone have availed over ₹70,000 crore worth of funding through this route across the country. This financing model is expected to continue growing as it is an attractive option for project owners to support their high capex requirements at relatively lower costs with the help of their existing cash flows and tangible secured assets.