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Veena Venugopal
Rukmani Vishwanath

`'The rate at which credit demand is growing, at least for now some banks may not want to park their funds in these investments.'

Mumbai , March 24

BANKERS are viewing the recently launched property fund as a potential means of killing two birds with one stone.

Not only would investment in these funds go towards the priority sector targets that banks have to achieve, it would hopefully fetch the banks tidy returns.

Though HDFC Ventures is the first to launch a property fund, several financial institutions are readying their offer documents for real estate and property funds.

IDFC's India Development Fund and Nabard's RIDF schemes were the other avenues for banks' investments.

This product category may also come handy to private and foreign banks that usually find it difficult to fulfil priority sector obligations.

HDFC's Property Fund seeks to invest in projects that are in use with established, high-quality tenants or in projects in the development stage where the lead time to commercial deployments would be 1-3 years.

The fund sees these investments as asset classes that would denote steady income and where contractual off take agreements are already in place.

Banks are sufficiently enthused about the product category, and many are examining the possibility of investing in the fund.

While, as per regulations, investments in a venture capital fund if it is listed with the Securities and Exchange Board of India can be construed as priority sector, banks are also viewing the property and real estate sector as poised for a great boom.

The current dampener for the fund, however, is the timing of the launch as banks are rushing to meet their credit disbursement target by March 31.

"Even if we find the fund to be an attractive proposition, a bank will invest only if it has surplus funds to invest. The rate at which credit demand is growing, it appears at least for now some banks may not want to park their funds in these investments as it will impair their ability to meet credit demand," said a senior official with a public sector bank.

"Banks that are strapped for cash are aggressively growing their deposit base to meet their liquidity requirements. So it depends on the availability of resources with a bank."

The close-ended nature of the current fund is also being viewed as adding risk to the investment by some banks that are not convinced about the argument yet.

However, with more products of varying duration being launched, even risk-wary investors will be able to invest in these products.

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