RBI revises guidelines on banks' commercial real estate exposure

The Reserve Bank of India (RBI) has issued revised guidelines on banks' exposure to commercial real estate to include that property where repayment of loans solely depends on the property itself and not on its expected profits.

Where repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc, the exposure would not be counted as Commercial Real Estate, RBI said in a release.

RBI said banks may extend finance to public agencies, and not to private builders, for acquisition and development of land provided it is a part of the complete project, including development of infrastructure such as water systems, drainage, roads, provision of electricity, etc on the basis of its Master Circular DBOD No DIR. (HSG) BC.08/08.12.01 /2009-10 of 1 July 2009 on housing finance.

Where land is acquired and developed by state housing boards and other public agencies, banks may extend credit to private builders on commercial terms by way of loans linked to each specific project. However, banks are not permitted to extend fund based or non-fund based facilities to private builders for acquisition of land even as part of a housing project.

Bank finance can also be granted to individuals for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, within such period as may be laid down by the banks themselves.

The CRE exposures collateralised by eligible credit risk mitigants would be reduced to the extent of risk mitigating effects of the, RBI said, adding, "CRE exposures to the extent secured by commercial real estate would attract a risk weight of 100 per cent."