Bank credit to commercial real estate picks up in FY14

Last Updated: Wed, Oct 02, 2013 04:56 hrs

After recording sluggish growth in the previous financial year, bank credit (loan) to commercial real estate (CRE) projects has picked up in the current financial year, registering a 17.4 per cent growth in August, compared to 8.6 per cent during the corresponding period of FY13.

In FY13, bank credit to the commercial real estate sector grew by 11.5 per cent, compared to overall credit growth of 14.3 per cent.

According to the latest data released by the Reserve Bank of India (RBI), in the first five months of FY14, credit growth to this sensitive sector was 7.9 per cent compared to 2.8 per cent during the same period of last year.

In absolute terms, banks have extended Rs 9,900 crore of loans to the commercial real estate sector in the first five months of the current financial year compared to Rs 3,200 crore during the April-August period of FY13.

Due to the sensitive nature of the commercial real estate, the central bank has prescribed high standard asset provisioning norm for such loans. Banks have to make one per cent standard asset provisioning requirement for CRE loans while for residential CRE loans, the requirement is 0.75 per cent. For most loans, the standard asset provisioning requirement is 0.4 per cent.

In early September, the banking regulator had barred banks from providing upfront housing loans for under-construction projects through innovative schemes termed as 80:20' or 75:25' by the developers. Under such schemes, one can purchase a property from a developer with bank finance, where only 20 per cent is to be paid as upfront payment, while 80 per cent can be paid after getting possession.

The other sector which has seen significant rise in bank finance is the non banking finance companies (NBFC) sector. According to RBI data, in August, bank loans to NBFCs has seen a growth of 18 per cent, compared to 5.4 per cent in July. In June, loan to the NBFC sector grew by 1.9 per cent.

Due to the spurt, loan growth during the April-August period was 10.3 per cent, reversing the trend seen in the last month when loans fell by 0.2 per cent compared to April.

In August this year, banks also saw a healthy growth in retail loans which increased by 17.8 per cent compared to a 13 per cent rise in August 2012.

RBI data shows credit to industry increased by 17.3 per cent in August, which is the same as last year. "Acceleration in credit growth to industry was observed in all the major sub-sectors, barring mining and quarrying, engineering, vehicles, rubber and rubber products, construction and glass and glassware," RBI said.

Credit to agriculture continues to see sluggish growth as it increased by 12.1 per cent in August this year, compared with the increase of 18.7 per cent in the year-ago period.

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