New RBI Rules May Hike Borrowing Costs For Real Estate timesproperty.com
The Reserve Bank of India (RBI) has proposed new project financing guidelines in a bid to create a more stable financing system. As of now, when a loan is issued, the bank allocates a portion of the loan amount (currently 0.4 per cent) to a separate account as a provision (the practice of setting aside a certain amount of money by the bank), to anticipate potential losses on loans. The new proposed guidelines suggest a higher provisioning percentage (five per cent) during the construction phase. “If a borrower defaults, the bank can utilise the funds set aside in provisions to cover some of the losses incurred. This helps maintain the bank's financial health,” explains Vivek Rathi, national director-research, Knight Frank India. However, this has got the real estate sector worried, as it is expected to increase the borrowing cost for developers by approximately 100-150 bps
