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Banks Get Tough With Commercial RealtorsBy ugesh sarkar, Section Finance & Taxes
Banks have cut their exposure to real estate, as stressed assets mount in the sector. State Bank of India (SBI) and Punjab National Bank (PNB), among others, have begun cutting borrowing limits for the sector, coupled with aggressive recoveries.
For the first time in nearly five years, loans to the real estate sector, including commercial property and construction finance, came down by Rs 8,120 crore to Rs 88,581 crore as on November 20, 2009, the Financial Chronicle has reported, citing a data released by the Reserve Bank of India (RBI). According to the report, on August 28, the total loans to the sector stood at Rs 96,701 crore. In those three months, growth in real estate loans dropped to 15.3 per cent from 41.5 per cent in the preceding three months and from 49 per cent a year earlier. In real terms, loans grew by just Rs 11,734 crore, against an expansion of Rs 25,276 crore in the corresponding period of 2008, it added. "Commercial real estate is one segment where there is a large amount of unutilised capacity. We will certainly cut our limits to commercial realty, as there is a huge concern on returns from this segment," quoted K R Kamat, chairman & managing director, PNB in the report. Source: Realty Plus Banks get tough with commercial realtors Click on "Full Story" For More...
SBI too has been reducing lending to real estate companies and aggressively targeting recoveries. "This is to stem the tide of bad loans, specially after projects, particularly low-cost housing, failed to take off," a senior SBI official was quoted as saying. Banks have become cautious, with RBI repeatedly warning against lending to real estate companies after it was revealed that many of them were diverting the money to group firms and special purpose vehicles. RBI also reclassified real estate exposure by removing hospitals and hotels from being classified as real estate exposure and terming them regular corporate exposure, the report said. An RBI official said some banks might have gone in for aggressive recoveries, leading to a drop in the outstanding amount. Real estate companies have begun to feel the pinch. Rajeev Talwar, DLF executive director, said that if the trend continued, bank credit could be replaced by mutual funds and private equity. "But this is not good for the economy, as these funds are volatile," said Talwar. Kapil Wadhawan, chief executive officer of Dewan Housing Finance, which also offers property management services to residential projects, confirmed that banks were cautious in funding commercial real estate.
"Banks had to restructure the accounts of many big real estate companies. While mortgage loans are provided easily by banks, commercial office space will find it difficult to get adequate funds, as supply outstrips demand," said Wadhawan.
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