Real estate exposure of banks rises 85%

Commercial banks' exposure to the real estate sector almost doubled in the first 10 months of 2005-06 over the March 31, 2005 level.

The total outstanding loans to real estate rose by 84.4 per cent to Rs 24,527 crore as on January 20, 2006, from Rs 13,302 crore as on March 31, 2005, according to the Reserve Bank of India's report on macroeconomic and monetary developments in 2005-06 released ahead of the announcement of 2006-07 credit policy tomorrow.

The sharp rise in loans to real estate made RBI to announce guidelines on exposure to real estate last month. The guidelines practically bans banks from lending to real estate developers for purchase of land.

Banks are allowed to lend only after developers obtain all the necessary approvals from the state and local authorities, which can happen only after the land is acquired.

Credit to real estate increased sharply, although it still constitutes only a small part "" less than two per cent of outstanding non-food bank credit and around four per cent of incremental non-food credit.

The incremental growth in personal loans was 27.9 per cent, largely a contribution of housing loans, credit card loans and educational loans.

Housing loans outstanding as on January 20,2006 increased by 29.1 per cent (Rs 37,431 crore) to Rs 1,66,159 crore from Rs 1,28,728 crore as on March 31, 2005.

Loans outstanding on credit cards was up by 53.3 per cent or Rs 3,072 crore to Rs 8,832 crore during the period. Similarly, education loans outstanding rose by Rs 3,884 crore to Rs 9,003 crore.

The incremental growth in non-food gross bank credit up to January 20, 2006 was 25.7 per cent. The outstanding non-food credit increased by Rs 2,56,580 crore to Rs 12,56,368 crore.

RBI said disaggregated data shows that almost 26 per cent of incremental non-food credit during April-January 2005-06 went to the industrial sector, while almost 15 per cent of incremental non-food credit was on account of housing loans and another 11 per cent was absorbed by agricultural sector. Credit growth remained strong for the second successive year on account of acceleration to commercial sector.

Industrial sector availed of Rs 66,480 crore of loans from the banking system in the first 10 months of 2005-06 against Rs 35,485 crore a year earlier.

The increase in industrial credit in consonance with sustained growth in domestic industrial production was mainly on account of infrastructure, textiles, iron and steel, chemicals, vehicles, gems and jewellery, food processing and construction.

The infrastructure sector alone accounted for more than a third of incremental credit to the industry, while textiles and iron and steel industries absorbed another one-fourth.