Reserve Bank of India today said bank loans whose repayment is done from future rental generated from properties like shopping malls and office premises will be treated as commercial real estate exposure (CRE).
Even though such exposures do not result in funding/acquisition of commercial real estate, the repayment might be sensitive to fall in real estate rentals, RBI said in final guidelines issued for CRE.
Few banks have formulated schemes where the owners of existing real estate have been offered finance to be repaid out of the rentals generated by these properties.
However, when there are in-built safety conditions for delinking the repayments from real estate price volatility, the loan need not be treated as CRE.
The safety conditions may be like the lease rental agreement with a lock-in period which is not shorter than the tenor of loan. Such agreement should not contain any clause which allows a downward revision in the rentals during the period covered by the loan banks.
RBI said bank finance to developers of infrastructure facilities in Special Economic Zones (SEZs) would be taken as infrastructure lending, against its 2006 ruling that classified these as commercial real estate exposures.
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Final guidelines on the definition of CRE exposures, necessitated due to risks involved in the real estate and Basel-II framework, were on Wednesday laid out by the RBI, after considering feedbacks on its draft guidelines.
“Banks can finance cost of land development, which will be classified as CRE for the reason that the source of repayment would be the lease rentals,” it said, adding loans for acquiring land for private developers for setting up of SEZ is not permitted.