Banks see risk in realty

Real estate firms could find raising loans to fund their new projects more difficult with banks saying they would be “conservative” in extending credit to the sector.

Real estate firms could find raising loans to fund their new projects more difficult with banks saying they would be “conservative” in extending credit to the sector.

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Bankers said they would rather lend to old economy sectors such as steel, cement, textiles and manufacturing than risk-prone real estate.

“We would adopt a conservative approach when it comes to lending to the real estate sector,” SK Goel, chairman and managing director, UCO Bank told Hindustan Times.

Debt-ridden real estate companies on the whole owe about Rs 75,000 crore to banks, a third of which are payable in 2010-11.

Defaults in the housing mortgage loans in the United States had triggered a collapse of several iconic institutions, such as Lehman Brothers, and plunged the world economy into the worst free-fall in 80 years.

A stringent regulatory architecture prevented India’s banks from catching the contagion, but the plight of their peers in the US and Europe appears to have made them more alive to risks in the real estate sector.

“We would like to be conservative when it comes to lending towards the real estate sector,” said TM Bhasin, CMD of Indian Bank. Another public sector bank chairman, who refused to be identified, said that these real estate companies would have to rely on non banking sources of revenue generation.