RBI freezes loans against NRE deposits

February 1, 2007	(Be the first to rate this story!)  Loading ...
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The Reserve Bank of India has issued instructions to member banks forbidding them from issuing loans against NRE and FCNR (B) deposits to non-resident Indians. The bank has also introduced measures to limit liquidity by reducing the rates of NRE and FCNR deposits.

This move comes in the wake of loans against NRE deposits being directed towards speculative investment in the stock market and real estate.

The RBI is taking firm steps from controlling excessive credit flow in the real estate market. Ever since the Government made housing loan schemes attractive, loans in this sector have been growing at 30%, a figure which is not in equilibrium with the economy’s growth rate of 8%.

Credit in retail has grown at 34% as against the previous year, and non-food credit including retail, has grown at 31%.

The RBI is eager to push for growth in productive areas like agriculture, infrastructure, small to medium enterprises and housing, and is firm on controlling speculation in commercial real estate and capital markets.

The regulatory authority’s efforts to control inflationary tendencies in the property market have drawn mixed reactions from realty experts in the recent past. While some have welcomed it, citing a 100% increase over 6 months as “reckless”, others maintain that slowing down lending will create a break in supply, and only aggravate the situation.

Some industry experts are of the opinion that residential and commercial construction is driven by a genuine demand, and such stringent measures need not be taken.

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News Published Under:   Non Resident Indian (NRI), Banking and Finance, Home Loans |

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