The Hindu Business Line : Asset price boom is a challenge, says RBI

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Home Page - Real Estate & Construction
Money & Banking - Monetary Policy
Asset price boom is a challenge, says RBI

10 banks identified as ‘outliers’ in realty, stock market exposure

A view of a residential apartment coming up in Chennai.

Our Bureau

Mumbai, Oct 30 The Reserve Bank of India’s Mid Term Review has said that the rapid escalation in asset prices, particularly, in equity and real estate, which are significantly driven by capital flows, are both a challenge and concern.

The escalated level of prices of real estate, the role of private foreign equity and non-banking financial companies, and the still strong pace of growth in bank lending to the sector is a cause for concern. In addition, the sizeable off-balance sheet exposures of select banks could pose some risks in a few cases, the RBI Governor, Dr. Y.V. Reddy, said on Tuesday.

Ten banks were identified as “outliers” based on their real estate and capital market exposures which are in excess of 200 per cent and 25 per cent, respectively, of their net worth. The initial analysis revealed that prima facie, all banks under review had put in place risk management policies and systems and controls to manage risks arising from exposures to sensitive sectors, said the Policy.

In the case of exposures to real estate, certain irregularities were observed with regard to the implementation of banks’ own approved policies. Accordingly, banks were advised to improve risk management processes at operating levels. Furthermore, banks were provided with an indicative list of deficiencies and irregularities and were advised to explicitly spell out the required norms for lending to the real estate sector in their policies, said Dr. Reddy.

“The RBI has already achieved what it wants. There has been a marked slowdown in the housing finance sector. Growth in housing finance has seen a slow down of between 15 per cent and 20 per cent,” said Ms Chanda Kochhar, Joint Managing Director and Chief Financial Officer, ICICI Bank. She said that corporate credit has grown by 30 per cent.

Mr Rana Kapoor, Managing Director and CEO, YES Bank said, “Strong capital flows are feeding into rapidly growing asset prices – real estate and equity in particular. The RBI has thus done well in keeping the policy (reverse repo, repo and bank rates) steady, reflecting the need to ensure overall price stability while maintaining the growth momentum.”