Tag Archives: Banks

Government may relax lending norms for cash-strapped realty sector

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Track2Realty, Track2Media, Track2Infra, Banks, India Real Estate, Ravi Sinha, Realty News, Property NewsTrack2Realty-Agencies: The Finance Ministry is considering a proposal to relax funding norms for the realty sector so that good housing projects are not starved of funds.

“The Ministry is actively looking at options … how to ramp up demand in the housing sector. We are studying all the possible impediments,” an official source said.

“We are of the view that good project will be funded,” the source said.

Banks are cautious in lending to the real estate developers because there is a huge mismatch in price and demand.

While dismissing general perception of holding on to inventories, real estate developers have been expressing concern that many projects are stalled due to lack of funds.

Finance Minister P Chidambaram in his meeting with heads of PSU banks  last month had pointed out that close to 5 lakh flats were lying vacant in Mumbai despite robust demand for housing.

Following this, Financial Services Secretary D K Mittal met bankers and the real estate developers body Confederation of Real Estate Developers’ Associations of India (CREDAI) earlier this month and discussed various issues affecting the sector.

The National Housing Bank, the regulator of housing finance companies, has been entrusted with the job of identifying viable projects across 10-15 cities and bring together a consortium of lenders to fund these projects.

Bank credit to commercial real estate has slowed significantly in the last one year. It contracted 1.8 per cent during April-July against 4.4 per cent growth in the same period of previous year.

As per the Ministry of Housing and Urban Poverty Alleviation, India faces urban housing shortage of over 26 million units. Besides, mortgage to gross domestic product (GDP) penetration in India is a meagre nine per cent as against 15-30 per cent in its peer group of south-east Asia.

RBI’s infusing liquidity more potent than rate cut: PMEAC

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Track2Realty, Track2Media, Banks, India Real Estate, Ravi Sinha, Realty News, Property NewsPrime Minister’s Economic Advisory Council (PMEAC) on Monday said the RBI move to infuse liquidity in the system is “more potent” than a cut in interest rate and it will help banks expand credit portfolio.

“The RBI has taken a cautious step. The latest data on inflation has not been encouraging…Under the circumstances, I believe this (25 bps reduction in CRR) is the maximum the Reserve Bank could have done,” PMEAC Chairman C Rangarajan told CNBC-TV 18.

In its mid-quarter monetary policy review, the RBI kept the key policy rate (repo rate) unchanged in view of high inflation but reduced the Cash Reserve Ratio – the portion of deposits that banks keep with the RBI. The move will infuse Rs 17,000 crore in the banking system.

In some ways, Dr Rangarajan said, a reduction in CRR is “more potent than even an announcement regarding policy rate” as the move will provide some additional liquidity and enable banks to expand their credit portfolio.

“I said that CRR is a more potent instrument only because CRR acts on the liquidity base of the commercial banks and therefore, even if an announcement is made on the policy rates the Reserve Bank of India will have to take actions either through Open Market Operations or through other mechanisms to provide liquidity,” Dr Rangarajan said.

He said the RBI recognised certain steps taken by the government and slashed CRR though the cut is not a big reduction.

Among other decisions, Government hiked the regulated diesel prices by over Rs 5 per litre, which satisfies the RBI’s long standing demand for containing fiscal deficit. It also liberalised foreign holding norms in some sectors.

Dr Rangarajan said the RBI policy in the coming weeks will depend upon how inflation behaves.

“If inflation hardens further, leaving out the direct impact of diesel price increase, then it may be difficult for RBI to follow further easing of the policy (rate)… I don’t think any central bank will be comfortable with an inflation rate of 7.5 per cent,” he said.

The wholesale price-based inflation for August moved up to 7.55 per cent from 6.87 per cent in the previous month.

Realty downturn hits banks by Rs. 7 lakh crore

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Track2Realty, Track2Media, Banks, India Real Estate, Ravi Sinha, Realty News, Property NewsThe Indian banks have been hit the worst with the downturn of the real estate sector. Even after restructuring the loans to the developers, they have a collective deficit of Rs. 7 lakh crore. With spiraling input costs & property prices, demand in the real estate sector has been on a steady downfall. Given the declining demand, it is is unlikely that the real estate companies will be able to repay their bank loans, especially since banks are the only source of funds for the sector.

According to the data presented recently in the Lok Sabha, banks have the largest exposure to real estate companies when it comes to recovering outstanding loans; almost 7 lakh crore of realty loans are still to be repaid.

The banking sector is additionally facing concerns regarding deteriorating asset quality, rising provisioning costs, increased loan restructuring and also the unease that gross non- performing assets might rise. The sector is also foreseeing a disturbing trend given the outstanding loan figures. Moreover, out of the total loans recoverable from the banking sector, real estate sector accounts for the largest portion. As per the figures presented in the Lok Sabha, banks have to recover a whopping Rs 6,83,597 crore from the real estate sector alone and the gross NPA figures as on March 2011 stood at Rs 11,553 crore.

In terms of the exposure, ICICI Bank has to recover Rs 79,956 crore, which is almost 43% of its outstanding loan book. Axis Bank has to recover realty loans worth Rs 45,932 crore, nearly 36% of its outstanding loan book. Similarly, HDFC bank has to recover Rs 23,618 crore.

Moreover, the grave exposure to real estate loans comes at a time when the Reserve Bank of India has been increasing the risk weightage for lending to the real estate sector. The risk weightage currently stands at 125%.

On the other hand for PSUs, real estate sector amounts for the largest share of the overall gross advances. Public sector banks have to recover nearly Rs 5,18,766 crore of realty loans as on December 2011.

Country’s largest bank, State Bank of India has to recover Rs 1, 32,580 crore from the real estate sector, Bank of India has to recover Rs 20,702 crore whereas IDBI Bank has to recover around Rs 35,864 crore.