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The apex bank has asked commercial banks to lend selectively and ensure that borrowers have all regulatory and government approvals in place for their projects.
They should curb the excessive risky lending to the sector to reduce the prospect of loans turning into non-performing assets.
While banks can sanction loan proposals for realty projects in normal course to avoid delays, credit should be disbursed only after checking whether the requisite clearances from the government and authorities are in place, the RBI has said in a circular to banks.
Completion of a real estate project has a risk. The work may get stalled if the project has not got the necessary approvals from environmental authority, pollution control board or local governments. If this happens, the project could turn into an NPA, a senior public sector bank official said.
One such instance could be the Mumbai textile mill land case. Plans to construct offices and malls on the textile mill land in the city have been delayed due to various regulatory, legal and environmental objections.
Though the funds provided to stalled real estate projects may not be lost, lenders will have to make provisions for NPAs, the banker said.
Concerned over the credit quality in housing and real estate sector, RBI had increased risk weights for all outstanding commercial real estate exposures of banks on two occasions.
