Date:03/03/2006 URL: http://www.thehindubusinessline.com/2006/03/03/stories/2006030302940600.htm

Back Banks warned on real estate exposure

Our Bureau

Mumbai , March 2

The Reserve Bank of India has once again cautioned banks against excessive lending to the real estate sector. In a notification issued on Thursday, the RBI has directed banks that they should disburse loans involving real estate only after obtaining all government clearance.

The RBI said there was substantial increase in lending by banks to the real estate sector during the last few years. While the development of real estate was welcome, there was a need for banks to curb excessively risky lending by exercising selectivity and strengthening the loan approval process, the notification said.

The Economic Survey released last week had also indicated significant rise in bank credits to the real estate sector.

The central bank advised banks that while appraising loan proposals involving real estate, banks should ensure that the borrowers have obtained prior permission from government/local governments/other statutory authorities for the project, wherever required.

In order that the loan approval process was not hampered on account of this, while the proposals could be sanctioned in normal course, the disbursements should be made only after the borrower had obtained requisite clearances from the government authorities, the notification said.