The RBI’s annual policy for 2006-07 stresses on growth but with restraint. It has projected growth at a reasonable trajectory of 20 per cent implying a calibrated deceleration from a growth of around 30 per cent over 28 per cent the previous year. The RBI sees this as a serious problem.
The one per cent increase on four select sectors where growth has been rapid and the 150 per cent rise in risk rate on real estate and venture capital, which has been treated as part of capital market exposure, had been done "to protect the banks" said Dr Y.V. Reddy, governor of the Reserve Bank of India.
He said when asset prices are moving there could be a risk to the banking system so it must be equipped to absorb these risks. Regarding the high risk provisioning for real estate and housing, Dr Reddy said there was a feeling that there was multiple acquisitions of houses due to the earning capacity of wives combined with that of their husbands, so this increased the risk.
The housing markets were such, he added, that the cost of processing and selling are high, so while organised lending increases the housing market, conditions such as greater costs were fraught with risks. He said that the raised provisioning limits could be withdrawn if there was an improvement in the tenancy laws, repeal of the urban land ceiling act, reduction in transaction costs, etc.
Justifying the curbs on retail lending Dr Reddy said there has been a consumer boom but the number of complaints about the extraordinary efforts that have to be made to recover the loans highlighted the growing pressures.
The growth in lending to big and small industries was 16 per cent, for personal loans it was 28 per cent, for housing 29 per cent and in real estate it was 84 per cent.
Most of the banks are expected to increase the borrowing rates and home loans in particular may see a rise. Dr Reddy expressed concern on the number of farmers’ suicides and said a technical group would be constituted to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different states.
The one per cent increase on four select sectors where growth has been rapid and the 150 per cent rise in risk rate on real estate and venture capital, which has been treated as part of capital market exposure, had been done "to protect the banks" said Dr Y.V. Reddy, governor of the Reserve Bank of India.
He said when asset prices are moving there could be a risk to the banking system so it must be equipped to absorb these risks. Regarding the high risk provisioning for real estate and housing, Dr Reddy said there was a feeling that there was multiple acquisitions of houses due to the earning capacity of wives combined with that of their husbands, so this increased the risk.
The housing markets were such, he added, that the cost of processing and selling are high, so while organised lending increases the housing market, conditions such as greater costs were fraught with risks. He said that the raised provisioning limits could be withdrawn if there was an improvement in the tenancy laws, repeal of the urban land ceiling act, reduction in transaction costs, etc.
Justifying the curbs on retail lending Dr Reddy said there has been a consumer boom but the number of complaints about the extraordinary efforts that have to be made to recover the loans highlighted the growing pressures.
The growth in lending to big and small industries was 16 per cent, for personal loans it was 28 per cent, for housing 29 per cent and in real estate it was 84 per cent.
Most of the banks are expected to increase the borrowing rates and home loans in particular may see a rise. Dr Reddy expressed concern on the number of farmers’ suicides and said a technical group would be constituted to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different states.