The National Housing Bank has recommended housing finance companies
(HFCs) to include a general provision of 0.4% of their total outstanding
non-housing loans in the form of standard assets.
All the loans related to the real estate sector will fall under
NHB loans. It may result into a high risk weightage of 150%. The
provisioning will be carried out in phases. HFCs will need to
include a provision of 0.1%. Consequently, it will give a push
to the provisioning requirements which is likely to go up to 0.4%
in four stages by the end of 2007.
This is for the first time the NHB has asked HFCs for the inclusion
of provisions towards standard assets. It also indicates that
HFCs will have to take a small risk on their profitability in
the financial year of 2006-07. Non Housing loans will essentially
comprise of the mortgage loans against commercial properties,
project loans, and lease rentals. Every HFC can offer non housing
loans up to 25% of the total long term borrowings thereby increasing
the interest rate.
Most banks feel this decision of NHB as a signal in the context
of a possible real estate bubble. Although, HDFC Bank does not
see any significant impact in near future but it will comply with
what the NHB has asked.
The NHB Decision is looked upon as a follow- up measure to reduce
HFC’s real estate exposure. Reserve Bank of India has already
added to the risk weightage on loans to be given for the development
of commercial properties to 150%. It has also asked the bank to
cut on their exposure to real estate companies.
