Growth based on sanctions before Oct, say bank executives.
Banks may be claiming that they are pruning their real estate exposure but data from the Reserve Bank of India (RBI) paints a completely different picture.
According to RBI data, loans to the real estate sector grew 61 per cent on a year-on-year basis, with Rs 90,765 crore outstanding as on February 27, 2009. During the corresponding period in the previous year, the growth was 26.7 per cent.
|REAL ESTATE LOANS
Year-on-year variation (in %)
|(as on Feb 15, 2008)
||(as on Feb 27 ‘09)
|Public sector banks
|Private sector banks
During the year up to February 2009, the growth for public sector banks was a 79.1 per cent. Credit deployment by foreign banks to real estate companies registered a 41 per cent growth for the 12 months up to February 27, 2009, compared with a 36 per cent decline last year (see table).
While the balance sheets of foreign banks are much smaller compared to their public sector counterparts, the 40 per cent growth in exposure to real estate firms is significant when seen against the annual growth in total credit by foreign banks, which was 4 per cent as on March 27, 2009.
At the same time, growth in loans from the banking system fell from 12 per cent to 7.5 per cent. But bank executives said the growth in real estate loan flows was based on sanctions before October and growth had slowed down in the second half.
A State Bank of India executive said a majority of lending to the real estate sector took place before October 2008, the time when global financial crisis assumed menacing proportions and sapped liquidity from the system, making banks risk averse.
Similarly, a senior executive of a foreign bank said the high growth in exposure to real estate sector companies was on account of disbursement of loans which had been sanctioned before the sector ran into trouble. “However, I don’t think we will see the same growth in the current year because builders have also cut back on projects,” he added.
Questionnaires sent to Citibank, HSBC, ABN Amro and Deutsche Bank went unanswered.
“During the last two years (2006-07 and 2007-08), real estate developers had launched a large number of projects which were initially funded by customers’ pre-sale contribution, with bank credit utilised over the last six months of construction,” said Amit Jain, managing director, strategic clients coverage group at Standard Chartered Bank. Without giving specific figures, Jain said his bank’s exposure to the real estate sector had increased in the fourth quarter of financial year 2009 and he expected the trend to continue as the bank met the requirements of a few of its core clients.
Axis Bank and ICICI Bank executives said there was no increase in their real estate exposure during the year. But an executive at a Mumbai-based public sector bank said: “Being a crucial sector of the economy, in terms of high employment generation potential and links with various sectors, banks were rushing to fund real estate projects. The returns were good with adequate securities (collaterals). The growth was seen across residential, office, commercial premises.”
On why the pace of public sector banks lending had increased, a Bank of India (BOI) executive pointed out that this was a reflection of the market share and the higher pace of lending in 2008-09 when private and foreign banks had slowed down lending. BOI’s outstanding exposure to the real estate sector rose to about Rs 18,400 crore at end of March 2009 from Rs 15,600 crore a year ago. It has restructured real estate portfolio worth Rs 250 crore, while total restructured loans stood at Rs 4,800 crore.
Asked about the approach towards lending to this sector, BOI chief financial officer VKR Agarwal said: “There is expectation that this sector will show normal growth in the later part of the year (2009-10). It is an important segment which cannot be ignored... Banks would be far more diligent and monitor the real estate account closely.”