Mint Road not to clear realty venture funds

The Reserve Bank of India (RBI) has informed the government that it cannot clear proposals received from foreign venture capital funds for investments in the real estate sector.

The central bank's refusal to clear the proposals comes after a request from the government that proposals worth over $1 billion be cleared.

The government had argued that the proposals had already been cleared by one of the regulators "" the Securities and Exchange Board of India, and its non-clearance by RBI would send wrong signals on the credibility of the Indian foreign investment policy.

The RBI had earlier expressed its reservations over the eligibility of real estate as a sector to be promoted for foreign investment.

The concern stems from the fact that in a high inflationary scenario, investments in real estate would further fuel inflation. Housing sector has considerably added to the impact of rising prices on inflation.

The RBI has hiked the risk weights for capital allocation for banks' lending to the real estate sector. Now, it has also sought to restrict bank funding to special economic zones by clubbing them with the commercial real estate sector.

RBI has its reservations on the nature of funds flowing into Indian through this route as well. There is no way to check the credibility of the funds routing their money into Indian real estate sector, a banking source said.

The government has already allowed 100 per cent foreign direct investment in real estate subject to minimum area of 10 hectares to be developed. The issue then is whether real estate needs promotional funds in the form of venture capital.