A developer's cash belongs to its projects first

Before 2017 a buyer who paid an Indian developer for a flat in an unfinished building was, in practice, lending to the whole company. The money went into a common pool. It paid for construction, but also for land elsewhere, for interest, for the next launch and occasionally for things the buyer would never have approved. When sales were strong, nobody noticed. When they slowed, the projects at the back of the queue stopped, and their buyers learnt that their money had been spent on someone else's building.

The Real Estate (Regulation and Development) Act changed the default. A developer must now deposit 70 per cent of what it receives from a project's buyers into a separate account, and may withdraw from it only to pay that project's land and construction costs, in proportion to the work done and against certificates from an engineer, an architect and a practising chartered accountant. The account is audited each year. It is one of the better-designed rules in Indian commercial law, and I lent to developers both before and after it took effect. The difference in what I could see as a lender was striking.

Yet I still hear the rule described, inside developers, as a limit on how much cash must be locked up, and the conversation that follows is about how to release the rest as quickly as possible. I think that is the wrong way to read it, and that boards and investors make the mistake easier by judging developers on a measure that treats all cash as alike.

Seventy per cent is a floor, not a budget

The 70 per cent rule sets a minimum. It does not say that the 30 per cent outside the account is free money, and it does not say that whatever the certificates permit should be withdrawn. A withdrawal certificate tells you how much the rules allow. It does not tell you whether the project will be able to finish if sales slow for a year.

Two practices make the difference. The first is how land cost is allocated across the phases of a large layout. A developer that registers a 40-acre township in five phases can allocate most of the land cost to the first phase, so that early construction progress releases a large share of the land cost from that phase's account. The allocation can be defended, and the certificates will follow it. But it moves cash paid by the first phase's buyers into the company years before later phases need it. At Mridvika we now allocate land cost across phases by saleable area. In 2020–21 that reduced what we could withdraw by about ₹310 crore.

The second practice is a cash floor. Each of our 34 project accounts keeps a balance equal to the next ninety days of planned construction spending before anything is released. A project whose collections fall behind its construction schedule therefore stops releasing cash to the company before it ever needs to borrow to finish. It is a simple rule. In the first quarter of 2020–21, when our collections fell by 41 per cent and every site was closed, it was the reason no project had to wait for money once work resumed.

Neither practice is required by law. Both cost the company flexibility, and in our case they cost us a land parcel in Baner that we could have bought with the cash we chose not to withdraw. I still think the trade was right. A developer's standing with buyers, lenders and the regulator is built project by project, and one stalled tower does more lasting damage than a missed parcel.

Consolidated net debt counts money the company cannot spend

Investors and analysts usually judge a listed developer's balance sheet by consolidated net debt: borrowings minus cash. On that measure, cash in a project's designated account reduces net debt exactly as much as cash in the company's own current account. But the two are not equivalent. Money in a designated account can be spent only on that project's land and construction. It cannot repay a corporate loan, fund a land deposit elsewhere or pay a dividend.

At March 2026 Mridvika held ₹720 crore of cash and equivalents, of which ₹430 crore sat in designated project accounts. Our reported net debt was ₹540 crore. If the restricted cash is set aside, the debt the company must service from resources it can freely use is closer to ₹970 crore. Neither number is wrong; they answer different questions. The reported figure describes the group's overall position. The second tells you how much room the company has before it must sell more, borrow more or slow down.

For some developers the gap is far wider than ours, because most of their cash sits in project accounts while their debt sits at the holding company, raised to buy land. Those are the companies most exposed if sales slow. A board that reads only consolidated net debt will not see the exposure until a corporate repayment falls due and the cash on the balance sheet turns out to belong, in effect, to buyers.

What a project cash ledger shows a board

Since 2021 our board pack has included a project cash ledger, one line for each registered project, and I would recommend something like it to any developer's board. Each line shows receipts from buyers to date, withdrawals to date, the balance in the designated account, cost incurred, the estimated cost to complete and the instalments still due from buyers who have booked. From those figures a director can see, for each project, whether the money still to come from existing buyers plus the account balance covers the cost to finish. Where it does not, the shortfall must come from new sales, from the company or from a lender, and the board should know which.

The ledger also changes conversations about land. When our land team brings a parcel to the board, the paper now shows which free cash would fund it after every project floor is met, and what would happen to the ledger if sales fell by a quarter for a full year. Some parcels look less attractive under that test. Some still go ahead. Either way, the decision is made on cash the company can actually use.

There is a cost to this approach, and I should be plain about it. We hold less flexible cash than peers with similar sales, our land bank has grown more slowly than some investors would like, and analysts have asked why we keep restricted cash we could legally release. My answer is that buyers paid that money for a particular building. Until the building is finished, the most useful thing a CFO can do with it is make sure it is still there when the contractor's bill arrives.