Banks to increase real-estate lending
By Joseph Samson
Nov 18, 2008
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As the Reserve Bank of India has eased additional capital requirements for advances to real estate sector, banks are becoming more kind in their lending to this sector.

Chairman and Managing Director, Bank of India and Chairman of the Indian Banks' Association, Mr T.S. Narayanasami said that RBI has relaxed provisioning requirements to support the real estate and NBFC sectors. "We will be more considerate in terms of interest rates when clients from these segments come for roll-over of their credit lines," he added.

In order to enhance liquidity and augment credit-flow in the system, RBI has eased the capital requirements for bank advances to the real estate sector, NBFCs and capital markets. Bankers feel that the regulatory has taken such a move to increase real-estate lending that is facing a demand slowdown. However most bankers did not agreed on pricing the credit.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said RBI has sent a clear signal to enhance real estate sector lending but pricing will depend on the funding cost. Initially banks had been hesitant in lending to this sector due to the higher risk and exposure limits. "Now we will lend. Pricing issue will come later. Over a period of time, it is possible that interest rates may come down," he said.

Chairman and Managing Director of Bank of Baroda, Mr M .D. Mallya says that pricing covers both capital cost and provisioning cost and as the standard provisioning has been reduced, pricing would take this into account. It would increase credit delivery to the sector and thereby give increased flexibility to over all credit delivery.

This sector provides employment to a large number of people and thus a slowdown in this segment has an adverse effect on many employees. Mr Keki Mistry, Vice-Chairman and Managing Director, HDFC, said the realization by RBI for the assistance of real estate sector is itself a positive indication.

The slowdown had forced banks to stop lending to even "AAA" rated real estate companies. These companies faced immense problem in accessing bank credit.

Earlier when the real estate market was seeing a consistent rise in prices, RBI had raised the risk weight on bank advances to the commercial real estate sector from 100% to 150%. But now the scenario is changing and the sector is observing a slowdown. As the prices come down to realistic levels, home purchases are likely to rise. Also the bankers anticipate an increased flow of credit to real estate at lower rates in the coming times.


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