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News & Views on Indian Real Estate

Wednesday, June 18, 2008

Banks turn choosy on realty loans

Sensing a correction in the real estate sector, commercial banks have become selective in lending to new residential and commercial real estate projects. Besides increasing the lending rates, some banks have asked the promoters to increase their share in project funding in an attempt to mitigate the associated risks. Banks have already turned selective in taking up new funding proposals. The Reserve Bank of India has already declared the real estate space as a sensitive sector under its prudential norms. The sector thereby attracts higher risk weightage (banks have to set aside higher amount of capital for real estate exposure) and the lending is closely monitored. Keeping with the rising cost of funds and the need for additional capital for risky assets, the banks have increased the lending rates for real estate projects. The real estate companies are now paying prime lending rates (PLR) for new projects. The growth in loans to commercial real estate remained high, notwithstanding some moderation, RBI said in its macro-economy report for 2007-08.

manish said...

The Reserve Bank of India has already declared the real estate space as a sensitive sector under its prudential norms. The sector thereby attracts higher risk weightage (banks have to set aside higher amount of capital for real estate exposure) and the lending is closely monitored. Keeping with the rising cost of funds and the need for additional capital for risky assets, the banks have increased the lending rates for real estate projects.

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