RBI May Formulate Strict Norms for Banking Applicants with Exposure to Real Estate

The Reserve Bank of India (RBI) may have to go easy on its suggestion of not granting new banking licences to those groups which have exposure to the real estate sector. The central bank had in a discussion paper indicated that the groups with real estate exposure may find it difficult to obtain new banking licences. However, with most of the new applicants having exposure to the real estate sector, sources said, the RBI may not be able to disqualify them from getting new licences. In such a case, the RBI may have to formulate strict norms for new banking applicants with exposure to the real estate sector. On Thursday, three deputy governors of the RBI — Usha Thorat, Subir Gokarn and KC Chakraborty — met with top officials from the financial services sector to get their feedback on the new bank licensing norms the central bank is working on.

During the two-hour discussion, “about three-fourth of the time was spent on discussing the real estate sector exposure of new applicants,” said an official who attended the meeting. Besides the issues relating to real estate exposure for banks — something that has been a cause for concern for the central bank — the other points discussed were the shareholding pattern and foreign holding in new banks, whether to convert NBFCs into banks under the new norms or to allow them to float one, and also, what should the minimum capital requirement be. During the meeting, it was pointed out that most of the corporate houses which are likely to vie for new licences from the Reserve Bank of India (RBI) also have realty companies within the group structure.

For example, the Tata Group has exposure to the real estate through Tata Realty & Infrastructure. Likewise, Mahindra & Mahindra, which is trying for a banking licence through Mahindra & Mahindra Financial Services, has exposure in the realty sector through Mahindra Lifespace, Reliance Capital has Reliance Property Developers, Indiabulls Group has Indiabulls Real Estate, the Religare Group has Religare Realty and L&T has L&T Urban Infrastructure. Indiabulls had shown interest to float a bank under the new regime but has now said it would most likely stay away from full-fledged banking. On NBFCs, the RBI would most likely allow them to sponsor banks, rather than convert into banks.

indianpropertyreview.com