| The abnormally high banking credit growth to the commercial real estate sector has created concern in the mind of the Reserve Bank of India and that was reflected in its annual policy statement for the year 2006-07.
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| Consequently, bankers are expecting interest rate hike in housing sector.
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| S K Goel, executive director, Allahabad Bank said," It is a risk management measure that RBI has taken. Banks requires to make more provision while exposing to these selected sector. This might lead to marginal increase in interest rates for loans to real estate sector and housing sector beyond Rs 20 lakh."
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| V Sridar, chairman and managing director, UCO Bank said, "It is safeguard measure from the regulator. Price of housing loan is likely to go up. We will be meeting tomorrow to take a call on this issue."
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| Allahabad Bank was somewhat concerned about RBI's decision to keep bank rate, reverse repo rate, repo rate and cash reserve ratio (CRR) unchanged.
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| "We were expecting a decline in CRR. This would have resulted into more capital in our hands," Goel noted.
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| UCO Bank said it was satisfied with this move.
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| "With liquidity scenario being comfortable it was expected that the rates would be left unchanged," Sridar said.
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| To ensure maintenance of asset quality, RBI has proposed to increase the general provisioning requirement on standard advances in commercial real estate sector and housing loans beyond Rs 20 lakh from 0.40 per cent to one per cent.
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| RBI has increased the risk weightage on exposure to commercial real estate to 150 per cent from current 125 per cent.
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| Y V Reddy, governor, RBI said that it was a precautionary move.
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| He explained that housing sector must grow and credit shall be there but such a moderating step was necessary as the cost was mild as compared to the potential risk that might emerge in future.
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| Reddy said that there was a necessity to maintain a balance and distinction between real estate and housing.
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| Real estate developers here were divided in their reaction.
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| Sumit Dabriwal, managing director, United Credit Belani group, said, "It is natural reaction to the excessive aggression that real estate developers have been showing in land acquisition. It is somewhat justified but real estate price might not be significantly hit as it depends on the relative demand."
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| Ravidra Chamaria, chairman, Infinity Infotech Parks, believed that the move might adversely hit real estate in the information technology sector.
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| "Unlike other real estate project, where developers often uses customers money in the development, those in IT sector would be adversely hit. In IT commercial estate, developer has to complete the building on his own cost and rent the completed building thereby increasing the requirement for bank financing," he added. |
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