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Our Bureau

Mumbai , July 2

In order to sensitise banks about the risks arising out of exposure to the real estate sector, the Reserve Bank of India has asked banks to put in place a risk management system for managing their real estate portfolios.

In a press release, RBI has asked banks to adopt a policy for their exposure to the real estate sector, which would include their exposure limits, collaterals to be considered, margins to be kept and how the sector is to be financed. This policy will have to be mandated by the banks' boards. The actual limits and margins may vary from bank to bank depending on the individual bank's portfolio size, risk appetite and risk containing abilities, the release said.

Banks should have a monitoring mechanism to ensure that the policy stipulations are being followed and that their exposure to this sector is within the stipulated limits. The release added that from now onwards, banks should report to the RBI their real estate exposure — both direct and indirect.

Direct exposure includes residential mortgages and commercial real estate, while indirect exposure includes fund-based and non-fund based exposures on national housing bank and housing finance companies.

Banks may also disclose their gross exposure to the real estate sector in their annual reports. In another circular, RBI said that private banks going for rights issues should make a complete disclosure of the regulatory requirements in their offer documents.

Any acquisition of shares in a private bank that takes the shareholding of any entity or group of entities to 5 per cent or more of the paid-up capital of the bank would require the acknowledgement of RBI. Any acquisition that takes the shareholding of an entity or a group to 10 per cent or more would require the prior approval of RBI.

In case any shareholder's holding goes up due to non-subscription of rights by other shareholders, the shareholder concerned would not be able to acquire further shares until his shareholding is brought within the stipulated ceilings.

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