To prevent formation of any asset bubble, the Reserve Bank on Tuesday asked banks to keep more money aside while giving loans to commercial real estate.
In its quarterly monetary review, the RBI said real estate prices, after showing some corrections in the latter part of 2008 and early part of 2009, have risen significantly in major cities.
To prevent any non-performing assests (NPAs) in the commercial real estate market, the apex bank raised provisioning requirement for banks from 0.40 per cent to 1 per cent for commercial realty.
It means that banks will have to keep Re one while giving Rs 100 loan to this sector against the current requirement of 40 paise.
In view of the large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely NPAs, the RBI said.
Also, asset prices have risen sharply in the stock and commodity markets. "Stock prices have increased by more than 70 per cent during the current financial year to date," it said.