RBI Restricts NBFCs from Investing in Real Estate

February 28, 2007	(Be the first to rate this story!)  Loading ...
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The Reserve Bank of India (RBI) tightened the norms for the banks to lend to real estate. Now, it targets the finance institutions investing in real estate by releasing stringent rules for them as well.

The new policy will enable RBI to monitor the market exposure of finance companies on a monthly basis. The central bank has redrafted the rules for such institutions and come out with deposits and another for those not availing of public deposits.

The new rules try to mark a difference between asset finance companies and loan & investment companies among the deposit-taking NBFCs.

From now, finance companies cannot invest more than 10% of their net worth in land or property, except for its own use. Moreover, the investments in unquoted shares of a company (not a subsidiary) have to be limited to 10% of net worth.

Talking about loan and investment companies, they have been allowed to park funds up to 20% of their net worth in unquoted shares. Current norms need asset finance companies to assure that at least 60% of their loans go to lease and hire purchase of machinery. As for the remaining part, it is used by finance companies to provide funds to the real estate sector.

If a finance company has any land in its acquisition or unquoted shares in exchange of its bad loans, these assets have to be disposed off by the NBFC within three years. Finance companies and Residuary Non Baking Finance Institutions with total assets of Rs 100 crore or above will have to deposit a monthly return on their exposure to capital market within 7 days of the expiry of the month to RBI.

News Published Under:   Banking and Finance |

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