Realty lending hits more hurdles

RBI tells banks to ensure that developers adhere to BIS code.

Lending to the 'sensitive' real estate sector is getting more and more cumbersome. First banks were told they can lend to a real estate developer only after a project has received all the necessary permissions, including those from local authorities, which effectively bans providing loans for buying land.

Now, Reserve Bank of India (RBI) wants banks to weave into their loan policies the National Building Code (NBC) of Bureau of Indian Standards (BIS).

BIS has formuglated a comprehensive building code providing guidelines for regulating building construction activities across the country.

RBI said the code contains all the important aspects relevant to safe and orderly development of buildings, such as administrative regulations, development control rules, general building requirements, fire safety requirements, stipulations regarding materials, structural design and construction (including safety) and building and plumbing services.

RBI, in a recent circular, has asked the boards of banks to consider incorporating the code in their loan policies.

This comes on top of increase in risk weight on exposure to commercial real estate by 50 basis points to 150 per cent for capital adequacy purposes over the last one year. It was first raised to 125 per cent from 100 per cent in July 2005 and in July 2006 to 150 per cent.

RBI had earlier conveyed to banks that they should have a monitoring mechanism to ensure that the policy stipulations are being followed by field-level functionaries.

The central bank had stipulated that banks should have a board-mandated policy in respect of their real estate exposures, including exposure limits, collaterals to be considered, margins to be kept and sanctioning authority.