Banking sector does a realty check
Banking sector does a realty check
Banks are raising interest rates on loans to real estate companies from 8.5 pc to 12 pc for they are taking RBI's warning seriously.

New Delhi: The banking sector is doing a realty check. Industry sources say some big banks are planning to scale down their exposure to the real estate sector.

Leading the list is State Bank of India. It has a total exposure of about Rs 6,000 crore to the sector and sources in SBI say they are considering going slow.

Officials at PNB, UTI Bank and Bank of Baroda too say their strategy is much the same.

The RBI had pointed out that loans to commercial real estate had grown by an unusually strong 84 per cent.

It therefore raised provisioning and riskweights on loans to this sector in the credit policy.

Banks say they are passing on these higher costs to borrowers by raising lending rates.

Industry insiders say that earlier large real estate groups could raise money for as low as 8.5 per cent from banks, but even before the Credit Policy announcement some banks raised rate to above 12 per cent.

Banks are also making a change in the screening process of these loans. Several banks told us they are planning to scale down the number of additonal real estate loans to one-tenth of what they were doing until recently.

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