Real estate loans grow 100% despite higher risk weightage
Real estate loans grew 100% between June ‘05 and June ‘06, despite RBI raising the risk weightage on such loans to discourage banks funding builders, reports Our Bureau.
By TNN |
MUMBAI: Real estate loans grew 100% between June ‘05 and June ‘06, despite RBI raising the risk weightage on such loans to discourage banks funding builders, reports Our Bureau.
The risk weights were raised twice since June’05, keeping in mind the adverse balance sheet implications in the event of a meltdown in property prices. RBI has also advised banks to have board mandated policy for their real estate exposures.
According to the annual report, loans to commercial real estate rose 102% year-on-year (y-o-y) as at end June ‘06. Retail lending rose 47% in the 12 months to June’06, with growth in home loans being 54%. The y-o-y growth in industry and agriculture was 27% and 37% respectively, as of end June’06.
It may be recalled that RBI had first increased the risk weight on exposures to commercial real estate from 100% to 125% in July’05. In April’06, it further increased the risk weight to 150%. The board mandated policy, according to the central bank, could include among other things, permissible exposure limits, collaterals to be considered, margins to be kept, sanctioning authority/level and sector to be financed.
The central bank has said that while a bank should specify an overall internal limit for this sector as a whole, it should also specify sub-limits for each individual sub-sectors. The risk management system should specifically address the price risk involved in this sector.
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To ensure this, the central bank has asked banks to develop effective management information system (MIS) to have accurate and timely data on their actual exposure and also a proper monitoring mechanism to ensure that the policy stipulations are being followed by field level functionaries and that their actual exposures, overall as well as segment-wise, are within the stipulated limits.On account of a sharp increase in real estate loans for nearly a year now, banks have been advised to have a proper risk management system in place to contain the risks involved. Banks have also been advised to put in place a system for ensuring proper checking and documentation of related papers before sanctioning/ disbursing of such loans.
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