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RBI Hikes Risk Weightage to Commercial Real Estate Loans
| October 28, 2009 |  (Be the first to rate this story!) Loading ... |
The Reserve Bank of India (RBI) on Tuesday cautioned against some sectors, especially the country’s real estate sector, which was just about starting to see a gain in asset prices. The central bank has hiked the risk weightage given to commercial real estate loans. The tools are hammering away once again, the high rises are mushrooming, but so are concerns over asset prices. Just as the commercial real estate industry started to enjoy the benefits of easy money, the RBI has decided to tighten the screws.
In its mid-year review the RBI has hiked the risk weight on commercial real estate loans to one per cent from the current 0.4 per cent. Explaining its decision, the RBI cites a more than 40 per cent increase in loans to commercial real estate and also adds a note of caution on the fact that nearly 14 per cent of commercial realty assets have been restructured by banks. The interest rate impact of RBI’s measures may be minimal for now, but the message from the central bank is clear that asset prices are being watched closely, one reason why most real estate stocks took a beating.
However, RBI had an equally strong message for banks, advising them to increase their provisioning coverage to at least 70 per cent by September 2010, a move that left bankers worried since it would mean an impact on profitability specially for some of the large PSU banks. O P Bhatt, chairman of SBI, said, “We have spoken to the RBI. They may give us time.” Meanwhile, the bankers were also disappointed that the RBI ruled out any possibility of hike in the held to maturity limit on bond portfolio, as it sees no justification of HTM cap being higher than the SLR requirement. The central bank’s message to banks was a mixed one. Even as the RBI governor reiterated the need to spur credit offtake, he cautioned banks to keep a close watch on asset quality and maintain enough buffers to absorb any future shocks.
News Published Under: Real Estate India |
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