Banks may increase interest rates on real estate loans

Posted by admin on 3 November, 2009
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The Reserve Bank’s direction to increase provision for commercial real estate property might force them to increase interest rates on realty loans in the coming months. These loans consist of lending to builders for construction of commercial properties like offices, malls, entertainment zones and hotels, reports Rupee Times.

An official from Union Bank said, "Banks were considering increasing the commercial real estate loan rates by 50-100 basis points to pass their burden of maintaining higher provisions to the customers. This (high provisioning) will really impact the credit flow to the real estate sector and will leave no option to banks but to increase their lending rates on commercial real estate loans by 0.5 percent to one percent."
In the quarterly review of the annual monetary policy on October 27, RBI Governor, D Subbarao asked banks to increase the provisions for commercial estate loans from current 0.4 percent to one percent of the loan.
In its review, RBI did not tweak its key interest rates. It however increased the statutory liquidity ratio (SLR) by 100 basis points to 25 percent.

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