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| Higher provisioning may hit bank funding, fear realtors |
| Press Trust of India / Mumbai Oct 27, 2009, 19:29 IST |
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The RBI's decision to hike the amount that banks have to keep aside for advances to commercial realty could hamper funding to the sector and force banks to raise interest rates, some players said.
They, however, welcomed the apex bank's intention behind the move to prevent asset bubbles in the segment.
"I am fully for preventing asset bubbles but the increase in provisioning now sends a negative signal. The commercial real estate sector needs a push--the country needs IT and commercial space and the increase in provisioning could impede bank funding to the sector," Sunil Mantri Realty's Chairman and Managing Director Sunil Mantri told PTI here today.
The apex bank today upped provisioning--the money that banks keep aside for advances to the commercial real estate sector-- from 0.40 per cent to one per cent with a view to build a cushion against likely non-performing assets (NPAs) in the sector.
"Cost of funding for the sector will increase," real estate baron, Niranjan Hiranandani, said.
He described the RBI action as "an ad hoc measure" taken "to cool down the gap between the demand and supply in commercial properties."
In recent years, demand for commercial real estate has increased but its supply has not picked up proportionately, he said.
Growth in the commercial realty space has been slower than in residential and the Reserve Bank needed to be more liberal, Mantri said.
"This is not a healthy sign... Commercial real estate was under more pressure during economic slowdown and there was no inflationary pressure from it... It is counter productive for the sector," global realty consultant Cushman & Wakefield Executive Managing Director (South Asia and Australia) Sanjay Verma told PTI.
Increasing the provisioning requirement will reduce funds availability for commercial projects and thus result in further delays in completion, he added.
However, real estate advisory services firm Jones Lang LaSalle Meghraj said the impact of the hike would not be significant.
"The impact will not be significant. With interest rates at their lowest now, a marginal hike due to this tightening in provisioning will not affect the overall sector seriously," the firm's CEO Sanjay Dutt said.
The move is aimed at curbing the formation of an asset bubble as well as speculation in the sector, Dutt said, adding that "if well-implemented, this move will benefit property buyers in the long run."
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