Exposure to real estate has risen sharply over the last five years but lending for commercial property relatively low
“Increased cash flows to the real estate sector definitely have the potential to push up real estate prices and could lead to a bubble. Hence, this is something which needs to be monitored closely,” said Soujanya P., group head, public sector bank ratings, Credit Analysis and Research Ltd.
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Posted: Thu, Nov 25 2010. 10:46 PM IST
Corporate loan racket
not a systemic threat,
say bankers
Exposure to real estate has risen sharply over
the last five years but lending for commercial
property relatively low
Dinesh Unnikrishnan
Mumbai: Indian banks’ lending to the high-risk real estate sector has gone up
sharply over the last five years, but bankers rule out the possibility of a systemic
problem, saying the portion of funds flowing into the commercial real estate
sector is relatively low and the lending is done in compliance with prudential
norms.
Banks’ exposure to commercial real estate, as a percentage of total loans, for a
majority of the banks rose as much as five times for lenders such as HDFC Bank
Ltd and Axis Bank Ltd during the last five years.
The exposure of most of the banks to the sector rose to 11-24% of total advances
at the end of March compared with 3-7% at the end of fiscal 2006, according to
data compiled from the annual reports of banks.
In the case of the largest private sector lender, ICICI Bank Ltd, this has risen to
35.25% from 29.71%.
The figure has more than doubled for state-run banks such as State Bank of
India (SBI), IDBI Bank Ltd, Punjab National Bank, Bank of Baroda, Central
Bank of India and Union Bank of India, the data showed.
However, according to sector analysts, lending to commercial real estate
contributes only 2-4% of the total real estate loans of banks, and majority of the
lending is to the salaried class for purchasing residential mortgage properties,
which are considered to be relatively safer on account of lower defaults.
Also Read | Lending Pattern (PDF)
Among the banks, SBI had the largest exposure to real estate at Rs 87,125.16
crore as of 31 March, followed by ICICI Bank’s Rs 63,870.73 crore.
The Central Bureau of Investigation (CBI) on Wednesday said it had busted a
loan-for-bribes racket, arresting several people, including executives of state-run
banks and the chief executive officer of LIC Housing Finance Ltd for giving loans
to private builders after taking bribes.
Industry officials said the episode wasn’t a threat to the banking system as a
whole. Also, banks are unlikely to reduce their exposure to the real estate sector
on account of the scam, they said.
“Commercial real estate is a small portion of our real estate book, in the range of
2-3%. We are mainly targeting the home loan market as they are more safer. I
will definitely say it is a one-off case. There is no systemic issue nor any
concern,” said Sushil Muhnot, executive director of IDBI Bank.
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