Banks’ exposure to realty sector on a rise

Written by Sandeep Singh

Published: January 3, 2015 2:41:35 am


The banking sector had became averse to lending to the real estate sector and cut down its exposure to such loans over the last few years This is primarily on account of rising NPAs at banks and high leverage within the sector. Now, banks seem to have kept their concerns aside for now as their exposure to the sector grew significantly in the year 2013-14 at 18.6 per cent which had declined to 10.8 per cent in 2011-12.
While real estate sector has been classified as sensitive by the Reserve Bank of India for the commercial banks to lend, data released by the central bank on the exposure of scheduled commercial banks to the real estate sector shows a significant growth in their exposure to the realty sector in the last year.

In the financial year 2010-11 the growth rate of exposure to the real estate sector by banks rose by 23.58 per cent but it had fallen to 10.8 per cent in 2011-12 following a decline in lending by both the public sector banks and private sector banks. However, as per the latest data released by the RBI, in the financial year 2013-14 the growth in lending to the real estate sector witnessed a pick up and stood at 18.6 per cent as both the nationalised banks and the private banks increased their exposure to the sector.

While the growth in exposure to realty sector by private banks stood at 23 per cent, that for the nationalised banks was at 21.4 per cent. Only State Bank of India and its associates have reduced further exposure to the sector during the year as the numbers rose by only 9.8 per cent.
Over the last five years, the overall exposure of the scheduled commercial banks to the real estate sector has grown by almost 90 per cent from 5.8 lakh crore in 2010 to Rs 10.94 lakh crore in 2014.

Several public sector banks such as Canara Bank, Vijaya Bank, Bank of Baroda and Bank of India witnessed a significant jump in their exposure to the sector in the last financial year. For Canara Bank the numbers rose by 68 per cent from Rs 15,770 crore in 2013 to Rs 26,554 crore in 2014.

Among private sector banks, Axis Bank witnessed the biggest surge in exposure to the real estate sector as the numbers grew 31.5 per cent from Rs 62,020 crore to Rs 82,088 crore in 2014.

The State Bank of India that increased its exposure to the sector in 2012-13 by 20 per cent, saw the growth number fall to 10.1 per cent in 2013-14.

This is a healthy trend for a sector that is starting to look up and get back on growth because a rise in demand in the sector will raise the funding requirement for the developers and they would need the support of the Indian banking sector.

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