Study of credit options to Indian commercial real estate with focus on banks’ credit

Abstract

Indian real estate is at its inflection point. With its rapid growth in last decade, the pace has declined in last 3-4 years post financial crisis. One of the major reasons is cited as lack of funds due to negative sentiments in this sector post crisis. As crisis was a result of sub-prime lending, banks and other investors have become increasingly conscious of funding to real estate projects to avoid any scenario similar to the west. As it is highly capital intensive sector, the growth has somehow stalled. So in our project work, we have focused on the current funding options available to Indian CRE with a special emphasis on bank’s credit. For that we have taken data from RBI website and annual reports of Indian banks to analyze how the funding trends have changed over the years. We also studied how the exposures are different in case of public sector banks versus private sector banks. We also have covered role of bank’s credit among different sources of funding for top CRE firms. We have analyzed how bank debts as percentage of overall firm’s debt have changed over the years. Finally we looked at recent initiatives taken by Indian govt. to improve funding scenario to CRE among which RIETs approval is the most significant and welcome step.