Date:23/12/2005 URL: http://www.thehindubusinessline.com/2005/12/23/stories/2005122301400600.htm

Back Real estate exposure risk for HFCs raised to 125 pc — Cos with large exposures have to rework strategy

Santanu Sanyal

Kolkata , Dec. 22

HOUSING finance companies having large exposures may have to re-work their strategies in regard to their capital adequacy, which is 12 per cent. This follows a recent National Housing Bank notification on risk-weightage for these companies.

The notification provides amendment to relevant rules relating to Housing Finance Companies Directions 2001.

According to the amendment, fund-based and non-fund based exposures secured by mortgages on commercial real estates will be 125 per cent as compared to 100 per cent previously. The commercial real estates will include office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial warehouse space, hotels, land acquisition, development and construction.

Investments in mortgage-backed securities and other securitised exposures backed by exposures secured by mortgages on commercial real estates too have been brought under the purview of the amendment.

The present amendment, according to sources in housing finance companies, might be intended to protect the system from possible fluctuations in prices resulting from recent escalation in real estate prices.

It might be recalled that the Reserve Bank of India has already increased risk weightage to 125 per cent in respect of commercial banks for exposures to real estate.