RBI denies banks’ request of restructuring loans
The Reserve Bank of India (RBI) has denied the request of banks to allow them to restructure real estate loans without providing for likely losses if the loans go bad.
A loan is said to be restructured when the original terms of the agreement (interest rates, tenure) are diluted in order to support troubled borrowers in repaying loans. This in turn even helps banks to recover the funds which they have lent.
This step of RBI can be appreciated for two reasons. Firstly, it is expected to bring down the house rates as banks force the developers to repay loans, for which builders would like to increase sales by reducing the rates. And secondly, the RBI can have a check on the covetous realtors, and would act as a key contributor to inflation.
Last week, Finance Minister P Chidambaram had informed banks to help the builders of residential projects, facing a cash crunch. Now the RBI’s stand seems to be in contrary to the Minister’s direction.
When property prices crashed in 2008-09, instead of forcing the builders to sell property at prevailing rates and repay the loans, the banks, with RBI’s permission, allowed builders to keep paying interest even if they were unable to repay the principal amount.
But this proved to be a bad move since the developers sticked to high prices undeterred by slowing sales as they were in no hurry to repay the loans. Even now, many banks are ready to lend fresh loans to developers in order to repay the old loans.
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Agreement, Banks, Borrowers, Finance Minister, high prices, house rates, Inflation, Interest rates, P Chidambaram, Principal amount, Property Prices, real estate loans, Realtors, recover, Reserve Bank of India (RBI), Residential projects, sell property, tenure
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[...] RBI denies banks’ request of restructuring loans [...]