Quality check sought as realty credit builds up

The Reserve Bank of India (RBI) has said the continued upswing in credit demand for housing and real estate has necessitated a greater focus on credit quality.

In its 2004-05 Annual Report, RBI said disaggregated data available for the first two months of 2005-06 show that credit demand is fairly broad-based. Credit to industry, housing and real estate continue to record strong growth.

In a bid to ensure credit quality is ensured, RBI had increased the risk weightage on banks' exposures to commercial estate and capital markets to 125 per cent from 100 per cent) on July 26.

Similarly in October 2004, RBI had raised the risk weight on home loans to 75 per cent from 50 per cent and on consumer credit to 125 per cent from 100 per cent.

The non-food credit of scheduled commercial banks (SCBs) has recorded a year-on-year growth of 30.2 per cent as on August 5, 2005 against 24.4 per cent a year ago.

The percentage wise growth in credit for housing and real estate was the highest at 44.5 per cent in 2004-05, followed by wholesale trade at 36 per cent and priority sector at 31 per cent.

The pick-up in the commercial bank's non-food credit, which took root in July 2004, was sustained by the continued buoyancy in the industrial sector.

Credit offtake from SCBs outpaced the growth in deposits with the incremental credit-deposit ratio jumping up to 118.1 per cent during 2004-05 from 49.9 per cent during 2003-04.

Despite the strong upswing in demand for bank credit, RBI has pointed out that monetary conditions have remained easy so far. The year-on-year broad money growth was 14.5 per cent as on August 5, 2005, in line with RBI's projection of 14.5 per cent set out in the annual policy statement for 2005-06.