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Gurgaon News  | Gurgaon Blogs  |  Gurgaon Article

Finance Ministry Pushes RBI to Give Infrastructure Status to Housing Sector & Ease Provisioning Norm
NEW DELHI: The finance ministry has asked the Reserve Bank to consider giving infrastructure status to the housing sector, and relax provisioning norms for it so banks can extend attractive loans to buyers.

RBI has mandated that banks set aside from their profits an amount equal to 1% of total standard assets in commercial real estate, which also includes housing projects. This means if a bank lends 100 towards a commercial real estate project, it will have to keep aside 1 to offset any loan to the sector turning bad. The provisioning rises to 15% of net investment in case of secured sub-standard asset.

A finance ministry official confirmed the government has asked RBI to look at all possible options to provide an impetus to the housing sector.

Cost of Housing Projects May Come Down

“This is one of the discussion points that within CRE (commercial real estate) a separate segment should be created with lower provisioning norms,” he said.

The government is of the view that a reduction of 40-50 basis points in provisioning norms can free up more capital with banks for lending towards the housing sector. One basis point is equal to one hundredth of a per cent.
“This will have a chain reaction and the cost of housing projects will come down, leading to lower prices in residential real estate. Also, it will provide an overall boost to the economy,” he added.

In an email response to queries raised by ET, RBI said: “We have nothing to share on the subject at this moment.”

Deepak Parekh, non-executive chairman of HDFC Group, said RBI should look at providing such dispensation. “Definitely, there is a case for it. In fact, we have made a case to the National Housing Bank for lowering the provision norms on individual loans as well,” added Parekh, who is also the chairman of the High-Level Committee on Financing Infrastructure.

RBI had increased the provisioning for the sector from 0.4% for standard assets to 1% in October 2009 after exposure rose sharply, fuelling concerns over asset quality. With loan growth to commercial real estate dropping to 7.8% in 2011-12, the government feels the time is ripe to roll back the measures.

Home sales across the country have dropped over the past year because of unrealistically high prices. The finance ministry has been trying to impress upon developers to reduce prices to improve sales. It has also advised banks to fund partially finished housing projects that are viable, if developers are willing to bring down prices.

But developers say bringing down prices would be difficult unless liquidity for projects improves and interest rates for housing projects are reduced.
“This move will improve sentiment and reduce interest rates for developers. This is a step in the right direction,” said Lalit Kumar Jain, national president of the Confederation of Real Estate Developers’ Associations of India.

The chairman of a state-run bank said easing the provisioning norms will free up more capital for banks and they may bring down interest rates for housing developers. “But I doubt if that rebate will be passed on. The housing sector is opaque and there will always be other reasons determining pricing,” he said.

Some bankers, however, are more conservative in their approach. “It will be difficult to implement this. Large projects have other frills, such as a shopping mall or a cinema complex, attached and differentiating between them will be a tedious exercise,” said the CFO of another state-run bank.

Source :http://economictimes.indiatimes.com/markets/real-estate/policy/finance-ministry-pushes-rbi-to-give-i

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