HOME > BUSINESS > RBI guidelines on long-term infra bonds positive for banks – Moody’s

RBI guidelines on long-term infra bonds positive for banks – Moody’s

Rating agency Moody’s said the Reserve Bank of India’s new guidelines on exempting long-term from reserve requirements will allow banks to compete more effectively in the infrastructure loan market.

real-estate-housing

“The new regulations are also likely to foster an improvement of banks’ competitive positioning vis-à-vis housing finance companies and infrastructure finance companies, because the banks’ lower cost of funding allows them to be much more competitive on pricing. This is especially relevant for plain vanilla mortgages, where price competition is already intense, forcing housing finance companies to operate with thin margins,” the agency said.

On Tuesday, the Reserve Bank of India said bonds with a tenor of more than seven years are exempt from cash and statutory reserve requirements as long as the bond proceeds are used to fund new long-term infrastructure projects and affordable housing.

Cash and statutory requirements refers to legal obligations that the RBI places on banks to keep apart a certain portion of their loans and exposure in liquid and secure forms such as government bonds, cash etc..

Not having to do this for a specific category would help banks increase their exposure to that sector without having to also park funds in low-return investments for complying with RBI rules.

“By exempting the bonds from cash and statutory reserve requirements, the central bank is effectively incentivizing banks to issue the bonds by reducing their costs. Although banks have been allowed to issue long-term domestic debt since 2004, issuance has been scant because it was not economical for them. The banks with the greatest exposure to infrastructure and mortgage loans are ICICI Bank Limited, Axis Bank Ltd, and State Bank of India, and they would be the key beneficiaries of these norms.”

However, Moody’s also said that banks would lend to these sectors only if they are able to raise more funds.

Indian banks’ exposure to real estate sector is already very high. They had outstanding infrastructure loans and housing loans totaled INR 11.4 trillion as of 31 March, while the total outstanding corporate bonds was around INR 14.67 trillion for the same period. A downturn in prices would seriously stress their assets and possibly force many banks to go under.

“The extent to which banks issue bonds under the new regulations will depend on the availability of a sufficiently large investor base. Given banks’ huge potential issuance compared with the current size of the corporate debt market, the extent of bond issuance under the new regulations will depend on the availability of an expanded investor base including foreign institutional investors.”

Follow ULTRA.news
Dalmia Group, Nisus invest in Greater NOIDA real estate project Fund manager Nisus Finance Services Co Pvt said it, along with a Dalmia Group's Landmark Holdings, has invested Rs 50 Cr in Casa Royale & Sanskriti, a project by Noida based Earthcon Infracon projects at Sector-1, Greater Noida, Uttar Pradesh.Landmark Holdings is the real es...
Indian Real Estate unsold inventory to fall this year – Fitch Fitch Ratings said it expects a slight improvement in the finances of real estate companies in India and forecast increasing consolidation and a reduction in the massive unsold inventories on their books."We expect the cash flow from operations of the rated Indian developers...
Hiranandani offers guaranteed rental for Bangalore project for 2 years As some consumers stay away from making big ticket investments into real estate, developer House of Hiranandani has come up with a 'guaranteed rental' scheme for those buying property at two of its towers at the Devanahalli township in Bengaluru.The company said that, depend...
RERA sales freeze drags down DLF Q2 profit by 94%, sales restarted Real estate major DLF reported a sharp decline in its revenue and profit for the July-September quarter after it stopped taking new bookings due to the implementation of RERA in May.The company's net profit fell by 94% to Rs 12.57 cr in July-September quarter from Rs 204.60 ...
Godrej Properties Q2 sales and profit double quarter on quarter Godrej Properties, one of the few big real estate giants that weathered the slow down in the market over the last three years well, has reported strong numbers for its second quarter.Revenue from operations jumped 49% to 492 cr, while net profit rose by 91% to 44 cr.Both...
Nila Infrastructures to construct 3,152 flats for Rajasthan government Nila Infrastructures Limited said it got a contract worth Rs 107.3 cr from Jodhpur Development Authority to create 3,152 flats in Barli.The Company will also get 7.5 acres free of cost that can be sold or developed.The township, to be completed in four years, comprise 2...
RBI fines Religare Finvest Rs 20 lakh The Reserve Bank of India has imposed a monetary penalty of ₹20 lakh on Religare Finvest for the failure to comply with the directions/orders issued by RBI on an assignment transaction."An inspection of the company was conducted under section 45N of the RBI Act, 1934 during ...
Indiabulls Real Estate on the mend post demonetization hit – Fitch Fitch Ratings affirmed property developer Indiabulls Real Estate Limited's Long-Term Foreign-Currency Issuer Default Rating at 'B+' with a 'stable' outlook, noting that conditions for the real estate developer are improving."The Stable Outlook reflects the recovery in IBREL'...
Piramal Enterprises invests Rs 280 cr in Thane real estate project by Puranik Piramal Enterprises Limited said it will invest Rs 280 crore in Puranik Builders' “Puranik City Reserva” project in Thane. The investment, routed through Piramel Finance, will be modeled on the ‘financial partnership’ model, it said.Puranik City Reserva is a theme-based ...
Godrej Properties starts 4.5 mln square foot project in Pune Godrej Properties Ltd, one of the few real estate players still actively launching new projects, announced the beginning of a new project in Pune.It said it will develop a residential project on approximately 59 acres in Mamurdi, West Pune, within the municipal corporation l...
Godrej Properties ties up with Manyata for Bangalore real estate project Mumbai-based Godrej Properties Limited said it will co-develop a residential project in Sarjapur in Bangalore in association with Manyata, a local developer.It signed a Development Management Agreement with Manyata Developers Private Limited to develop a group housing projec...
Piramal Enterprises enters the retail housing finance business Piramal Finance Limited (PFL) has entered the retail housing finance business.It is part of $1.3 bln Piramal Enterprises, one of India’s large diversified companies, with presence in pharmaceuticals, and financial services.The housing finance venture has been floated thro...
Motilal Oswal raises Rs 1,030 cr for investing in real estate Motilal Oswal Real Estate (MORE), the real estate arm of Motilal Oswal Private Equity said it raised Rs 1,030 cr under its India Realty Excellence Fund III.The strong inflow suggests continued investor appetite for investments into companies dealing in this sector despite a ...
K Raheja Corp, GIC buys Siemens building in Worli for Rs 610 cr Capital equipment maker Siemens today said it has transferred its lease for its Worli building to a joint venture K. Raheja Corp Group and GIC, Singapore for a consideration of Rs 610 cr.The deal was originally announced in December and is one of the biggest land deals in In...
Govt to give subsidy of Rs 2.5 lakh per flat; free land to builders Central Government will give up to Rs 2.5 lakh as interest subsidy for people who take home loans to purchase their house under the Pradhan Manthri Awas Yojana, said Minister of Housing & Urban Affairs Hardeep Singh Puri.He also revealed plans to hand over government land t...
Godrej Properties, Nirmal to co-develop huge project in Thane West Mumbai-based real estate company Godrej Properties said it has signed a joint venture agreement with Nirmal Ventures, also based in Mumbai, for developing a residential project in Thane.The project, located on the Lal Bahadur Shastri (LBS) Marg, Thane West, will be developed...
Mumbai-based developer Capacite to raise Rs 400 cr in IPO Mumbai-based real estate developer Capacit'e Infraprojects has priced its initial public offer at Rs 245-250 per share.The company said it will open its Rs 400 cr IPO on Wednesday, Sep 13 and close it on Sep 15.Up to 50% of the issue will be allocated to institutional inv...
UPDATE: 99% of demonetized currency returned to govt Eight months on, the Reserve Bank of India is yet to finish verifying and counting the 500- and 1000-rupee notes surrendered by the public between Nov 8 and Dec 30, 2016, the finance ministry said in a statement on Aug 11.UPDATE: About ten days after this article was publishe...
Godrej Properties announces new projects in Bangalore, Gurgaon Real Estate developer Godrej Properties said it kicked off two new projects -- both residential apartments -- in Gurgaon and Bangalore.The Gurgaon project is is of 98,000 square meters or 1.05 million sq. ft., while the Bangalore project will add 58,000 square meters of salea...
IT woes to bring down real estate rentals in Bangalore, IT hubs With IT sector witnessing subdued sentiment amidst pressure on hiring and annual pay rise for employees, the country's software and services hubs such as Bengaluru, Hyderabad, Chennai, Pune and Noida-Gurgaon in NCR are expected to see 10-20 per cent reduction in the housing rents...