These is a possibility that the Reserve Bank of India (RBI) may make borrowing more expensive for builders by asking banks to set aside more capital for loans to commercial real estate projects. Due to higher capital requirement, banks will have to raise interest rate on such loans.
Senior banking professionals feel that RBI may either raise standard provisioning or risk weight on bank loans to real estate companies in the forthcoming policy.
As per an official of Indian Overseas Bank, If RBI does not raise cash reserve ratio and keep signalling rates like repo rate and reverse-repo rate untouched, my feeling is that it may tighten the prudential norms. A hike in risk weight, particularly on real estate loans, is not ruled out."
Risk weight is the capital that is set aside for the calculation of capital adequacy ratio, which is 9 per cent for all banks. For real estate companies, risk weight is 100 per cent, irrespective of the rating due to which banks have to keep aside Rs 9 for every Rs 100 loan to builders.
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