RBI wants a fix on bad loans in realty

The
Reserve Depository Financial Institution of Republic Of India (RBI) have kicked off an exercising to estimate the extent of
bad loans of Banks in the existent estate segment. Ever since run batted in started tightening
rates from end-2004 which forced Banks to raise place loan rates, there have got been
reports of rising defaults. Some of the top local banks
have reported a rise in the figure of bad loans in the real property section as higher
monthly refund agendas started barbed many borrowers. run batted in now desires to have got a hole on
the degree of bad loans in the banking industry, especially relating to home
loans and commercial property. It have commissioned a study on bad loans in both
residential mortgages and commercial existent estate loans. The regulator have sought
details on standard progresses in the sector from Banks for three fiscals â€"
2001-02, 2002-03 and 2003-04. run batted in wrote to some Banks on September 14, directing
them to react to questions by September 28, bankers said. Sir Joseph Banks have got been told to
furnish inside information of bad loans generated during 2004-05, 2005-06 and 2006-07. RBI
wants Banks to submit inside information of all such as loans at the end of March 31, 2005,
2006 and 2007. The impact of a higher involvement charge per unit on borrowers and consequent
default acquires reflected only with a spot of a lag. Bankers think that this could
be the ground for the regulator career for information of loans which had originated a
few old age ago. The latest
exercise looks to be a follow-up on the meeting that run batted in had with Banks during
the 2nd hebdomad of September to discourse the impact of the subprime crisis in the
US and Europe on North American Indian banks. run batted in functionaries wanted to measure whether Indian
banks had any exposure to such as loans while attempting to estimate the impact of the
crisis on the broader North American Indian economy. In fact bankers have got been told to keep
central depository financial institution functionaries posted of any developments, including marker rumours. Commercial Banks have, over
the past four years, been loaning aggressively to the existent estate sector. In
fact, for respective Banks loaning to residential mortgages represents over 50% of
their sum retail exposure. Outstanding existent estate loans for banks, according
to run batted in data, rose from Rs 13,546 crore in March 2005 to Rs 45,328 crore at the
end of March 2007. During the
last couple of years, run batted in have clamped down inordinate loaning by Banks to the
real estate sector on fearfulnesses of an plus terms bubble. While the run batted in have placed
fetters on exposure of Banks to the working capital market, in footing of a capping it at
40% of the former year’s nett worth of the banks, no such as restrictions
apply to loaners when it come ups to existent estate. According to a senior banker
with a private bank, despite a higher hazard weightage imposed by RBI, the central
bank is of the position that there have actually not been a lag in loans to the
sector. Hence, the regulator have decided to prosecute Banks on this issue in an
effort to poke at them to travel slow on funding
realty. In January 2007, the
central depository financial institution raised the provisioning demand to 2% for standard assets in
the existent estate sector, outstanding recognition card receivables, loans and advances
qualifying as working capital marketplace exposure and personal loans (excluding residential
housing loans). In April 2006,
RBI hiked the provisioning for standard progresses 1% for personal loans, capital
market exposures, residential lodging beyond Rs 20 hundred thousand and commercial real
estate loans. It also increased the hazard weight on exposures to commercial real
estate to 150%.