RBI Bring a Time to Rejoice for Property Developers

April 25, 2007	(Be the first to rate this story!)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

The RBI’s latest stand on the risk weightage for sub – 20 lakh loans has given a push to a number of real estate stocks which has resulted into a sharp upswing in prices. A number of property developers are seeing a rapid increase in their realty stock prices which are believed to move by 4-9%. The rise is witnessed by Ansals, Mahindra Gesco, Parsvnath, Sobha and DS Kulkarni.

Real estate developers are largely benefited from the reduced risk weightage as it will allow banks to increase their exposure to the sector on the same capital base. The profits will be limited to small towns and cities as there are many home loan borrowers looking for the loan exceeding the amount of Rs 20 lakh. The reduced risk weightage may lead to any significant reduction in the interest costs for the consumer.

The capital adequacy ratio of Indian banks is believed to be around 9%.  This signifies that the bank requires a capital of 9% of Rs.75 for every Rs.100 lent to the housing industry.  However, the scenario is no same now.  The capital requirement has been pull down to Rs 4.5 for the same amount of lending – for sub Rs. 20 lakh loans.

The lower capital adequacy will not result into any significant impact on the borrowing cost. It will just allow the banks to further extend their exposure to retail loans in the housing sector without raising any fresh funds. This helps the real estate developers to emerge as the winners.

News Published Under:   Banking and Finance |

Comments