| The Reserve Bank of India is reviewing banks' | | | | observation, though any concrete step by the RBI to |
| exposure to the commercial real estate sector. | | | | check the flow of credit might take some time. |
| This comes on the back of a continuous rise in prices | | | | On the other hand, banks have become cautious in |
| in the sector, even as the regulator has followed | | | | lending to the sector and are cutting down their |
| prudential norms for taming the flow of bank credit by | | | | exposure made in the form of venture capital. |
| raising the risk weights for capital allocation. | | | | They are not only reviewing proposals for commercial |
| The RBI is contemplating a sectoral cap for limiting the | | | | real estate funding, but have also become wary of |
| flow of bank credit to the sector, in line with the limits | | | | investing in bonds floated by real estate companies. |
| imposed for capital markets. Another option being | | | | A study by the RBI has revealed that banks which |
| considered is to further raise the risk weights on such | | | | have lent heavily to the commercial real estate sector |
| loans. | | | | are not necessarily exposed highly to retail home loans. |
| According to banking sources, further prudential | | | | In fact, the study did not find any correlation between |
| tightening for the commercial real estate sector would | | | | the two categories of lending, said a banking source. |
| not have been required had the regulator gone ahead | | | | Bankers felt raising the risk weight might send a signal |
| with the implementation of the revised capital | | | | that the RBI was much concerned about banks' |
| adequacy norms, popularly known as Basel II norms. | | | | exposure to the commercial real estate sector, which |
| This is because under these norms, risk weights are | | | | was anyway not overly dependent on bank finance. |
| proportionate to the sensitivity of the sector. The | | | | There were overseas private equity funds, especially |
| higher the risk weight, the higher is the capital allocation. | | | | in West Asia and South East Asia, which were bullish |
| Sources close to the development said the | | | | on Indian real estate, they said. |
| commercial real estate sector was under strict | | | | |