Apex Bank to Redefine Commercial Realty

May 8, 2007	(Be the first to rate this story!)  Loading ...
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The Reserve Bank of India (RBI) is soon to come up with a new definition for commercial real estate. The revision is aimed to exclude educational institutes and hospitals from the realm of commercial realty.

Increasing exposure of banks towards these sectors has encouraged the central bank to take the move. Over the past few months, there has been a rise in the number of loans given to hotels and hospitals under commercial real estate, which implies indulgence of banks in risky business despite the RBI’s constant warnings on keeping an eye over the real estate bubble.

Contrary to this, banks explained that the business dynamics and profiles of these to-be-excluded sectors are not the same as commercial real estate. Educational institutions and hospitals are a part of social infrastructure and hence they should be reviewed in a different way while prescribing the risk weights.

Bank Exposure

RBI has especially put stiff risk weightage to cut down the pace of bank funding to a little extent. The central bank raised risk weightage from 100 per cent to 150 per cent in less than 21 months.

The modifications had direct implications for pricing loans to hotels and hospitals. Banks are required to factor in the cost of risk weight while lending to the hotels and hospitals.

News Published Under:   Banking and Finance |

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