RBI carves out new sub-sector for lending to residential housing within integrated projects

The Reserve Bank of India (RBI) has carved out a separate sub-sector called ‘residential housing’ under the commercial real estate (CRE) sector which would benefit both builders and lenders, especially those in integrated township projects.

As loans to the residential housing projects under the CRE sector exhibit lesser risk and volatility than the CRE sector taken as a whole, the central bank has decided to carve out a separate sub-sector called commercial real estate – residential housing (CRE-RH) from the CRE Sector.

The CRE-RH segment will attract a lower risk weight of 75 per cent and lower standard asset provisioning of 0.75 per cent against 100 per cent and 1 per cent, respectively, for the CRE segment.

An analyst tracking real estate said the move would benefit the builders by the way of good cash flow and the banks’ lending to the quality realty sector would improve.

RBI had earlier said it would create a separate sub-sector for residential housing.

Lending for CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under the CRE segment. Ordinarily, such projects should not include non-residential commercial real estate, said the central bank on Friday.

“However, integrated housing projects comprising commercial space such as shopping complex, school, etc can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total floor space index (FSI) of the project,” it added.

Banks are required to make provisions and risk-weight for their housing loans to individuals as per the amount of loans as also the loan to value (LTV) ratio for such loans. In its new notification, the central bank has rationalised the provisioning requirements.

“Retail housing portfolio is completely secured and banks generally vie to increase their lending to builders in this sector. A recognition to this effect will reduce the cost involved in lending to the customers,” said a senior banker at Corporation Bank who requested anonymity as he is not authorised to speak to the media.

Banks generally tie up with builders and waive legal cost involved in scrutinising the asset and such recognition is expected to help the banks increase lending as well.

However, banks’ exposures to third dwelling unit to an individual will also be treated as CRE exposure and may affect lending to multiple house buyers.

(Edited by Joby Puthuparampil Johnson)

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