NBFCs with big real estate loans must bring down their exposure

NBFCs with big real estate loans must bring down their exposure
27/07/2019 , by , in News/Views

The Reserve Bank of India (RBI) has asked non-banking finance companies (NBFCs) with loans predominantly made to real estate companies to bring down their exposure to this sensitive sector. The central bank is looking at applying concentration risk norms — similar to banks — to the finance companies.

In the finance sector, the National Housing Bank has been keeping a watch on lending to developers by mortgage companies. Banks too have scaled down their lending to this segment. In the NBFC sector, real estate exposure to total assets came down to 6% from 6.7%. However, the problem is in some finance companies that have a larger ratio of developer loans to total loans than even housing finance companies (HFCs).

“The problem with taking an industry-wide approach is that it gives a misleading picture as no two companies have a similar risk profile. Companies are very specialised — either infrastructure, consumer durables, small business or commercial vehicles,” said a banking source. Because of this, sectoral limits have not been enforced and there are finance companies specialising in areas like infrastructure.

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