HDFC Chairman Deepak Parekh is not the only one who is concerned over the rising real estate prices in India. Alarmed by the overheated real estate industry, the Reserve Bank of India (RBI) has asked all banks to report it directly any exposure above Rs 15 lakh in both home and commercial lendings.RBI said all direct exposure in the residential mortgages, ie, lendings fully secured by mortgages on residential property occupied by the borrower or rented. Earlier, banks were not sending the data on all borrowers or the collaterals to RBI. The RBI move comes after reports that some borrowers defrauded banks of crores by showing fake agreement papers with builders — taking advantage of the competition among banks to lend more to the retail sector. Banks have also increased their exposure to home loan borrowers and builders.Besides, the banking regulator said it should be kept informed of all lendings on office buildings, retail space, multi-purpose commercial premises, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction.A recent review by the banking regulator showed that though the advances of the banks to the housing sector, particularly to the land developers and builders, are on the rise, a corresponding control mechanism was not in place for managing the risks.As banks are not providing for real estate exposures as per the norms, banks will be separately advised in regard to the reporting requirement. Further, banks are asked to disclose their gross exposure to real estate sector as well as the details of the break-up as mentioned in the annual report.RBI said banks must have a board mandated policy in respect of their real estate exposure. ‘‘The policy may include exposure limits, collaterals to be considered, margins to be kept, sanctioning authority/level, sector to be financed etc, though the actual limits/margins may vary from bank to bank depending upon the individual bank’s portfolio size, risk appetite and risk containing abilities, etc,’’ the central bank added.‘‘Banks should have risk management system in place for containing risks involved in this sector, including price risk. Besides, banks should have a monitoring mechanism to ensure that the policy stipulations are being followed by field level functionaries and that their exposure to this sensitive sector is within the stipulated limits,’’ RBI added. In his annual communication to HDFC shareholders, Parekh had warned of a bubble in the real estate industry and advocated the need for a proper regulatory mechanism for the industry. ‘‘In India, residential property prices in some areas have recorded a growth of about 15-20 per cent in the last two years. One of the questions being asked is whether the escalation in demand and the resultant uptrend in prices been purely driven by low interest rates and rising levels of affluence or whether the success story has a speculative angle,’’ Parekh said in a letter to shareholders. In the past, many investors have lost their shirts after they invested their life-long savings in overheated real estate industry and the market crashed soon after.
