Apartments to get cheaper ??
Posted: November 29th, 2012, 1:54 pm
as per today's Economic times, there is a pressure on Banks from RBI for loan recovery instead of restructuring them. We need to wait to know how this helps before March 2013.
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BANKS TOLD TO TAKE HIT ON LOAN RECAST
Homes to Get Cheaper as RBI Cracks Whip
SANGITA MEHTA MUMBAI
The Reserve Bank of India has turned down banks’ demand for restructuring stressed loans in real estate without providing for potential losses, a move that could pressure builders to lower prices as banks push to recover loans. The central bank believes that if permitted to restructure without forcing banks to provide for losses, the desire to insist on prompt payments would wane leading to developers holding on to prices for long even if sales is slack, two bankers familiar with the discussions said.
Builders will get the benefit of paying the same loan over a longer period without feeling the pinch, RBI’s deputy governor KC Chakrabarty is supposed have told bankers at a recent meeting, said those two bankers who did not want to be identified. Banks will be at ease once the loan is prevented from becoming a sub-standard asset, the deputy governor had said. Real estate prices have been rising steadily after the government prodded the central bank to give a one-time benefit to restructure real estate loans in 2008 during the credit crisis.
However, in many parts of the country, the prices have soared so high that it has become unaffordable, leading to a slowdown in the sale of homes. If the banks pressure developers, it could lead to a fall in prices.
House prices at the all-India level rose 6-7% on quarter in the first quarter of this fiscal, data from the RBI shows. Transaction volumes rose 9.3%.
While prices have been rising across the board, transaction volumes have been falling in cities such as New Delhi, Bangalore, Kolkata and Chennai.
Bankers had sought a special dispensation due to rising bad loans which is eroding their profitability. Total real estate bad loans, net of provisions of all commercial banks, rose 55% to Rs 64,900 crore on March 31, 2012 from Rs 41,700 crore. Staterun banks’ share of it was Rs 59,100 crore, up 64% from Rs 36,000 crore. As of now, banks have to classify a restructured loan of a real estate company as bad loan or non-performing asset the moment it is restructured. Even as banks are free to restructure many times, they have to set aside more money if it is a bad loan. Chakrabarty told banks they should recast the real estate loan and take a hit on their loan book rather than postponing the problem.
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BANKS TOLD TO TAKE HIT ON LOAN RECAST
Homes to Get Cheaper as RBI Cracks Whip
SANGITA MEHTA MUMBAI
The Reserve Bank of India has turned down banks’ demand for restructuring stressed loans in real estate without providing for potential losses, a move that could pressure builders to lower prices as banks push to recover loans. The central bank believes that if permitted to restructure without forcing banks to provide for losses, the desire to insist on prompt payments would wane leading to developers holding on to prices for long even if sales is slack, two bankers familiar with the discussions said.
Builders will get the benefit of paying the same loan over a longer period without feeling the pinch, RBI’s deputy governor KC Chakrabarty is supposed have told bankers at a recent meeting, said those two bankers who did not want to be identified. Banks will be at ease once the loan is prevented from becoming a sub-standard asset, the deputy governor had said. Real estate prices have been rising steadily after the government prodded the central bank to give a one-time benefit to restructure real estate loans in 2008 during the credit crisis.
However, in many parts of the country, the prices have soared so high that it has become unaffordable, leading to a slowdown in the sale of homes. If the banks pressure developers, it could lead to a fall in prices.
House prices at the all-India level rose 6-7% on quarter in the first quarter of this fiscal, data from the RBI shows. Transaction volumes rose 9.3%.
While prices have been rising across the board, transaction volumes have been falling in cities such as New Delhi, Bangalore, Kolkata and Chennai.
Bankers had sought a special dispensation due to rising bad loans which is eroding their profitability. Total real estate bad loans, net of provisions of all commercial banks, rose 55% to Rs 64,900 crore on March 31, 2012 from Rs 41,700 crore. Staterun banks’ share of it was Rs 59,100 crore, up 64% from Rs 36,000 crore. As of now, banks have to classify a restructured loan of a real estate company as bad loan or non-performing asset the moment it is restructured. Even as banks are free to restructure many times, they have to set aside more money if it is a bad loan. Chakrabarty told banks they should recast the real estate loan and take a hit on their loan book rather than postponing the problem.