RBI cautions banks on assessing risk of real estate advances

With some of the real estate companies having substantial investment in their subsidiaries, the Reserve Bank of India (RBI) today asked banks to assess the risk of the group as a whole while giving loans to these companies.

"...Some of the companies operating in the real estate sector have significant exposure in the form of advances, investments, etc. To their subsidiaries and other group or related entities," RBI said in a notification.

As a matter of prudence, banks may meticulously assess the inherent group risk of their borrowal accounts falling under the purview of real estate sector, the RBI added.

The central bank further said that while assessing the loan requirements of large builders or land developers, they may carefully analyse the financial credentials and viability of the borrowers supported by the position of the group.

The banks may also examine the financial credentials or viability of the relevant unconsolidated related entities such as Special Purpose Vehicles, it added.

If the RBI advice is headed by banks, they will assess the risks associated with other interests of the real estate companies and may reduce the loans depending on the risk factor.