Financial Daily from THE HINDU group of publications
Wednesday, Jul 27, 2005

News
Features
Stocks
Port Info
Archives
Google

Group Sites

Home Page - RBI & Other Central Banks
Money & Banking - Monetary Policy
Industry & Economy - Economy


First quarterly review of Monetary Policy — RBI hikes risk weights on loans for real estate, capital markets

Our Bureau

Mumbai , July 26

TO check unrestricted flow of bank funds to real estate and capital markets, the Reserve Bank of India has increased the risk weights for banks' outstanding exposure to these sectors from 100 per cent to 125 per cent with immediate effect.

Banks will have to set apart more capital in their books as cover to maintain their existing level of lending to these sectors.

Exposure to commercial real estate includes loans to commercial premises, office buildings, multi-family residential houses, warehouses, hotels, and for land development and constructions.

Addressing a press conference to announce the first quarterly review of the monetary policy here on Tuesday , Dr Y.V. Reddy, RBI Governor, said banks' exposures to commercial real estates have gone up to Rs 12,000 crore in May this year from Rs 5,000 crore in May last year. Last year, the RBI had increased the risk weights for banks' housing loans from 50 per cent to 75 per cent.

Dr Reddy said at the current stage of development, increasing bank loans to housing sector is encouraging.

At the same time, it is necessary to take some precautionary measures.

"Banks' housing finance should grow but it should grow in a healthy and prudent manner," Dr Reddy said.

Banks' exposure to capital markets includes direct investment by banks in equity shares, convertible bonds and debentures and units of equity-oriented mutual funds.

This also includes advances against shares to individuals for investments in IPOs or ESOPs and secured or unsecured loans to stockbrokers and guarantees issued on behalf of brokers. At present, banks' capital market exposure is restricted to 5 per cent of their gross advances.

The RBI has recently decided to allow, on a case-to-case basis, banks to increase their exposure to 8 per cent.

In fact, some private banks have been seeking RBI permission for higher capital market exposure limit though PSU banks are generally satisfied with the 5 per cent cap.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page


Stories in this Section
Rains wreak havoc in Maharashtra


Bay `low' moves inland with rain belt in tow
Bharti Q1 net at Rs 510 cr; customer base up 57 pc
Outsiders instigated labour unrest: Honda management
Violence continues for second day at Gurgaon
Panel gives go-ahead for Pension Bill — Suggests 26-pc FDI cap, ban on investments abroad
First quarterly review of Monetary Policy — RBI hikes risk weights on loans for real estate, capital markets
Key interest rates unchanged
Bengal tea workers' stir ends as unions settle for productivity-linked wages


The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line