Higher lending to realty & infra projects worries RBI
Exposure to the infrastructure alone accounts for 15%, out of the total non-food credit advance of 25%
Oct 15, 2014
Source : The Financial Express


Mumbai: At 25% of the total non-food credit, banks’ exposure to the infrastructure and real estate sectors is highest compared with other sectors. Exposure to the infrastructure alone accounts for 15%.

It is, therefore, obvious that the Reserve Bank of India (RBI) could flag off concerns at this higher level of concentration towards these two sectors.

RBI deputy governor R Gandhi had expressed concern at the high exposure. “We are very much concerned about further exposure beyond these levels,” Gandhi had said at a recent event last week.

Given the troubles brewing in the infrastructure and opacity in the real estate transactions, banks are doubly cautious. Though some are moderating loan disbursements for the realty projects, for infrastructure projects, banks are still extending loans owing to the government’s thrust and the absence of other financing options. Gandhi added that banks cannot put all their eggs in one basket and other sources of finance for infrastructure are critical.

VR Iyer, the chairman and managing director of Bank of India, concurred there is a high concentration risk that the banks are facing.

“The reform expected from the new government should help. But one has to keep in mind the concentration risk,” said Iyer.

Credit to infrastructure grew at near 50% in 2009-10 and had clocked double-digit growth every financial year thereafter. With projects getting stuck due to lack of clearances and policy logjam, the credit growth to the sector slowed to 10.9% y-o-y in 2013-14, from as high as 38% in 2010-11.

The bulk of financing is still bank-driven. Even RBI has relaxed several regulations to boost credit to the infrastructure sector. The latest is allowing banks to raise money through long-term infra bonds without the cost of maintaining reserve ratios that are otherwise applicable to bonds.

Iyer said that even at thebalance sheet growth rate of 15-18% y-o-y, banks cannot meet the financing needs of infrastructure sector. “We need other modes of financing, we need to develop the bond market,” she said. It is estimated that India needs a $1-trillion investment in the infrastructure over the next five years. It is also clear that RBI is not keen on relaxing more norms.

Bankers are cautious on exposure to the real estate sector. Punjab National Bank is the banks that have been moderating exposure to real estate. “We have been moderating our real estate exposure over the last two-three years.

Latest Realty News

DLF, India's most indebted realty firm, faces tough choices after fund-raising ban
Oct 15, 2014
DLF Limited will be forced to sell assets, even unfinished projects, to meet debt obligations, say bankers
Last day to apply for DDA 2014 housing scheme
Oct 15, 2014
Today is the last day to apply for the Delhi Development Authority's (DDA) highly-successful 2014 housing scheme
Housing demand to pick up in 6-8 months: Report
Oct 15, 2014
Housing sales have remained lower than expected so far during the current festival season mainly due to high interest rates and the demand is likely to pick up only in the next 6-8 months, according to a Knight Frank and Ficci Report
Realty-led Per Capita Wealth Grows to $4,650 in 14 Years: Report
Oct 15, 2014
Real estate-led the per capita wealth creation of the country's adult population which has grown at 8 per cent per annum in the past 14 years to $4,650, according to Credit Suisse
Prefabs to be a game changer in realty sector
Oct 15, 2014
With the construction industry facing a huge slump and recovery not yet in sight, the time might be ripe for builders to go for pre-fabricated blocks to cut construction costs
DLF an example of why realty sector needs a watchdog
Oct 15, 2014
The stock market regulator Sebi’s crackdown on India’s biggest real estate company, DLF, is a clear indicator that the sector is in urgent need of a cleansing of the Augean stables, market experts said
REIT $20 billion spending in India delayed by tax rules
Oct 15, 2014
The Indian government has announced rules for setting up real estate investment trusts (REITs), vehicles that may spur $20 billion of property development
Here are South India's real estate hotspots
Oct 15, 2014
Until only recently, the South Indian real estate market was known as highly price sensitive, with buyers primarily focused on the affordability quotient
Charges other than interest cost associated with home loans
Oct 15, 2014
In August, lending institutions, such as State Bank of India (SBI) and Housing Development Finance Corp. Ltd, lowered home loan interest rates marginally for new borrowers
Reduced Okhla eco-zone plan put up for comments
Oct 15, 2014
The environment ministry on Tuesday invited comments to a draft notification that proposes a reduced eco-sensitive zone (ESZ) around the Okhla Bird Sanctuary

Latest Realty News Of State

Realty Talk's