Avoiding creation of another asset bubble:The RBI’s credit policy announced on Tuesday appears intended to rein in an incipient bubble in the real estate sector. The provisioning requirement for loans to commercial real estate has been increased from 0.40% to 1%, implying costlier bank loans for the sector.
As most of the realty companies rely on bank funding, especially in times of financial crisis, this move could have an impact on the sector.
“As banks often keep a cushion for any regulatory changes in provisioning, this measure is more for bringing moderation in the realty sector. Since necessary reduction in prices has still not taken place and there is fair amount of money available for the sector, this step is to avoid creation of another asset bubble,” says M Narendra, executive director of Bank of India.
Too early:Not unexpectedly, industry officials differ. According to Rajeev Talwar, executive director of DLF, “Stability in major parameters is a good sign, but increasing the risk weightage for commercial real estate is a negative signal, which is perhaps not required so early in the economic revival process.”
To read more, please, visit The Economic Times
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