Indian Banks' exposure to real estate sector to be fixed

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Aiming to put in place a proper risk management system for banks' exposure to the real estate sector, the Reserve Bank of India has asked banks to come out with a board-mandated policy which includes fixing of exposure limits.

There should be a board mandated policy in respect of real estate exposure which may include exposure limits, collaterals, margins, sanctioning authority and sector to be financed, though the actual limits and margins may vary, depending upon the individual bank s portfolio size, risk appetite and risk containing abilities, the RBI said in a notification.

Banks should have a risk management system in place for containing risks involved in this sector, including price risk, it said adding, a monitoring mechanism to ensure that policy stipulations are being followed by field level functionaries and that their exposure to this sensitive sector is within the stipulated limits should also be formulated by the banks.

RBI said the banks should report their exposure to the real estate sector, especially to Real estate Kochi sector for which the demand is currently on boom under various heads such as direct exposure and investment in mortgage-backed securities.

The apex bank said a recent review revealed 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, required for managing the risks involved in this sensitive sector, has not been adopted by majority of the banks.