Thursday, October 15, 2009

RBI CAUTIONS BANKS ON GROUP EXPOSURE RISK IN REALTY SECTOR

The Reserve Bank of India (RBI) has told banks to meticulously assess the inherent group risk on
borrowal accounts coming under the real estate category. Further, while assessing the loan requirements of large builders/land developers, banks should carefully analyse the financial credentials / viability of the borrowers on a consolidated basis supported by the consolidated accounts / position of the group. Banks should also examine the financial credentials/ viability of the relevant unconsolidated related entities such as special purpose vehicles (SPVs).The current practice in the real estate sector is that builders / developers hive off each project as a special purpose vehicle so that projects are ring-fenced from each other.

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