RBI says no to restructuring of real estate loans (to builders)

Copy paste from ET website


MUMBAI: The Reserve Bank has turned down banks' demand for restructuring stressed real estate loans without providing for potential losses, a move that could mount pressure on builders to lower prices as banks push to recover loans.

The central bankBSE 1.01 % believes that if banks are permitted to restructure the loans without providing for losses, they will lose the urge to insist on prompt payments from builders, who in turn would continue to hold onto prices even if sales are 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 to repay, RBI Deputy Governor KC Chakrabarty is supposed to have told bankers in a recent meeting, said the 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, Chakrabarty said.

Real estate prices have been rising steadily since the government prodded the central bank to give a one-time benefit for restructuring of real estate loans during the credit crisis in 2008.

But in most parts of the country, prices have soared through the roof, bringing down home sales. If banks pressure developers, it could lead to a fall in prices.

Home prices at an all-India level rose 6.7 per cent in the first quarter of this fiscal, data from the Reserve Bank of India shows. Transaction volumes rose 9.3 per cent.

While property 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 that are eroding their profitability.

Total real estate bad loans, net of provisions of all commercial banks, rose 55 per cent to Rs 64,900 crore on March 31, 2012, from Rs 41,700 crore on March 31, 2011. State-run banks' share in this was Rs 59,100 crore, up 64 per cent from Rs 36,000 crore.

Currently, banks have to classify restructured loan of a real estate company as bad loan the moment it is reworked.

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Attribution - 
http://economictimes.indiatimes.com/markets/real-estate/realty-trends/buying-a-home-to-get-cheaper-as-rbi-says-no-to-restructuring-of-real-estate-loans/articleshow/17406901.cms 

Reporter: Sangita Mehta,ET Bureau
Copyrights: Economic Times  (TOI - Bennett Coleman)


Disclaimer: copied for information purposes only

It will be fun to see how builders (and their politician masters)  will now force the Government owned banks to backdoor restructure the RE loans dished out to builders

Correct me if I am wrong but -
SBI, HDFC, LIC and ICICI are the top mortgage lenders in the country.

Ironically the same bankers (and their politician masters ) are making it worse to get home loans by charging ridiculous pay off fees, unnecessarily high interest rates, horrible customer service, unrealistic stamp duty and VAT.

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Loan growth stonewalled by surge in house prices, crashes to 5-month low as buyers fail to turn up

Its Diwali and all as per the norm, this is the season for making big purchases like houses and cars. Unfortunately this year is turning out to be damp squb. Very high inflation has pushed daily budgets of most middle-class citizens to the brink. Nobody in the right mind is making any big purchases. Anybody with an account with a bank is hounded by retail bankers pushing loans and investment. Most are not buying the bait. Existing loan owners have seen their EMI tenure extended by 10 years to a maximum of 30. One friend of mine complained he has been servicing the interest for the past 2 years and has added almost nothing to the principal. The flat now has cost him more then what he has paid even after regularly paying the EMI. 

The black magic of compounding of loan interest is only experienced by the borrower. 

Brokers tell me that the market has a gone silent for loan properties over 1 Cr in Mumbai. The only buyers in the market are those who trade up/down their existing properties depending on their need. No Gujarathi NRI's are interested in the market. Hurricane Sandy has hit a  huge number of Gujarathi's business owners in NY and NJ. I just heard from one who wants to dispose of his Mumbai property.. Here are pictures from Hurricane Sandy. The devastation to property is just mind numbing.  With so much damage to houses it seems that housing rental market is going to give the newly displaced a new shock. 

Economic Times  article is here

MUMBAI: Growth in home loans has slumped to a five-month low despite banks showering potential buyers with attractive schemes and lower rates due to soaringreal estate prices. 

Buyers are holding back since an over-24% increase in prices in the past one year is putting homes beyond their reach despite banks lowering interest rates by 100-150 basis points in the past four months. A basis point is 0.01 percentage point. 

Home loans have grown by 11.2% year-on-year in September, compared with 15.6% in the same month a year ago. The latest growth rate for home loans is the lowest since April. 

"Interest rates have a limited role to play in house sales," said VK Sharma, CEO at LIC Housing FinanceBSE 0.54 %, India's second-biggest mortgage lender. "Home prices affect sales more than interest rates. If the house price range is within the capacity of the middle class, then sales pick up." 

Facing slowing demand for loans from corporates, banks have been pushing retail loans, especially mortgages, since it is one of the safest forms of lending. But steep prices are stalling sales. More than 80,000 flats remain unsold in Mumbai and the financial capital has lost its crown as the fastest-growing market. 

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