RBI bars NBFCs from
real estate speculation
Real estate news By Time News Network
Friday, Feb 23, 2007 03:37:42 AM
MUMBAI: After making it difficult for banks to lend to real
estate, the Reserve Bank of India (RBI) has placed restrictions
on finance companies investing in real estate. On Thursday,
RBI came out with new norms for finance companies that bar
them from speculating in property and enable RBI to monitor
their capital market exposure on a monthly basis. The central
bank has recast its rule book for finance companies by coming
out with two sets of regulations — one for finance
companies that deposits
and another for those not availing of public deposits.
The guidelines seek to distinguish asset finance companies
and loan and investment companies among deposit-taking NBFCs.
The new norms state that no finance company, which is accepting
public deposits, can invest more than 10% of its networth
in land or property except for its own use. At the same
time, investment in unquoted shares of a company that is
not a subsidiary has to be limited to 10% of networth. Loan
and investment companies are, however, allowed to invest
up to 20% of their networth in unquoted shares.
Existing guidelines require asset finance companies to
ensure that 60% of their loans go to lease and hire-purchase
of machinery. Several finance companies have been using
the balance 40% to fund real estate sector. If a finance
company acquires land or property or unquoted shares in
exchange of its bad loans, these assets have to be disposed
off by the NBFC within three years.
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