Commercial Realty Projects May Suffer With Increased Loan Rates

Reserve Bank of India, Kolkata
April 15, 2010

The builders might now suffer with costlier scrounging since Reserve Bank of India (RBI) plans to ask banks to set apart more funds for loans to commercial realty projects. This in turn will force banks to aggrandize the interest rates on such loans.

According to senior bankers RBI can take either of the two options. First, increase normal provisioning or second, risk weight on bank loans to realty firms in the forthcoming policy on 20th of April. This will be intended at shielding banks’ contact with properties in the midst of mounting prices.

According to the Chairman and Managing Director of Indian Overseas Bank, SA Bhat, the outcome of RBI not raising the cash reserve ratio (CRR) and keep signaling rates like reverse-repo rate and repo rate untouched will be that the prudential norms will get tighten. “An increase in risk weight, especially on realty loans, is not ruled out”, he added.

As per the latest available figures, in November 2009, banks exposure to commercial realty was Rs. 88,581 crores.

The capital which is set apart to estimate capital sufficiency ratio is the risk weight which is now 9 percent for all banks. Less capital is to be kept for borrowers with increased credit rating. The risk weight is 20 percent for triple A clients, which indicates that a reserve of Rs. 1.80 of its own capital for every Rs. 100 loan is to be needed within banks for such borrowers.

Post a Comment

You must be logged in to post a comment.