RBI for differential realty loan caps

Regulator notes certain lapses in banks' policies while lending to real estate.

The Reserve Bank of India (RBI) has asked banks to set separate limits for lending to residential and commercial real estate within their overall exposure to the sector, while specifying norms to be followed for lending to the realty sector.

The banking regulator has noted lapses in the implementation of banks' own approved policies while lending. Following this, in the last week of July, the RBI had directed banks to put in place internal ceilings and sub-ceilings for their exposure to the realty sector.

Banks were also told to explicitly state in their loan policy the minimum internal rating required for builders and developers.

The bank's lending policy should contain the minimum contribution to be brought in by the promoter. Besides, the required security cover and procedure for registering and verifying the documents also have to be specified. 
 

HEADING NORTH Direct exposure in real estate sector (Rs crore)
	Residential Mortgages		Commercial Real Estate
	2,006	2007	2006	2007
ICICI Bank	43,166.85	59,515.30	6,984.60	14,250.98
SBI	23,248.97	33,412.29	4,574.16	6,264.55
IDBI Bank	7,399.44	9,256.19	741.42	2,130.89
PNB	6,021.29	7,513.73	2,663.38	4,000.59
Bank of India	4,300.10	7,053.33	1,074.94	2,569.94
HSBC	5,602.32	6,877.52	787.30	1,538.52
Canara Bank	6,720.40	6,570.97	1,395.64	2,909.27
Stanchart Bank	6,435.95	6,417.32	1,857.75	2,982.68
Bank of Baroda	3,836.80	5,414.60	345.69	1,968.13
UBI	4,944.17	5,125.63	896.18	1,629.74
Axis Bank	2,608.60	4,763.53	1,660.76	3,885.16

The RBI had conducted a supervisory review process (SRP) (January to March) of 10 banks having a significant exposure to sensitive sectors, particularly the realty sector. These banks had a real estate and capital market exposure in excess of 200 per cent and 25 per cent of their net worth, respectively. The other sensitive sector is the commodities sector, but the banks hardly have any exposure to it.

The RBI issued instructions to banks to improve their risk management at operating levels. The RBI provided the banks with a list of deficiencies and irregularities revealed by the study.

The review conducted by RBI was split into two phases. Under phase one, detailed information of exposure to sensitive sectors, including real estate sector, was sourced from these banks.

Then, the RBI officials conducted onsite scrutiny focused on lending towards real estate and other sensitive sectors, companies involved, branch-wise large individual exposures and other related matters.

The apex bank's initial review revealed that real estate exposure had increased across all banks, mainly on the account of individual housing loans. Also, commercial real estate exposure had risen in varying degrees. Exposure to the capital market lending was on the rise as well. However, none of the banks had breached the regulatory limits.

According to RBI data, banks lending to the commercial real estate sector on a year-on-year basis as on August 17, 2007 increased by 52.9 per cent to Rs 16,145 crore. The housing loan portfolio of banks on a year-on-year basis as on August 17, 2007 grew by 16.6 per cent to Rs 33,489 crore.