The Reserve Bank of India (RBI) has asked banks to go slow on lending to the commercial real estate sector. The regulator fears an asset price bubble. The RBI advisory comes in the backdrop of a sharp increase in lending to commercial real estate projects in the last one year and non-performing asset (NPA) growth in the sector staying higher than the growth in overall loan delinquencies.
In the last two weeks, RBI has engaged with the top management of several banks. During these meetings, it also sought opinion on performance of the commercial real estate sector.
"The central bank officials indicated that we should go slow on loans to commercial real estate due to an increase in NPAs amid slackening demand for such properties," said the chairman and managing director of a public sector bank.
According to RBI data, bank lending to commercial real estate registered 20 per cent growth in the year ended May 30 as compared to 1.2 per cent in the previous year.