Thursday, December 18, 2008

Banks must manage risks associated with real estate: RBI

The dangerous inter-dependence between real estate cycles, bank crisis and the ultimate threat to financial stability

Real estate prices:

The Reserve Bank on Wednesday said that it is imperative for banks to manage balance sheet risks associated with real estate exposure.

This becomes important "particularly in the current scenario of slowdown in the economy with its expected ramifications on real estate prices, given the historically positive correlation between economic downturn and its adverse impact on real estate prices," the apex bank said.

"Risky Ventures"

With the major portion of real estate exposure consisting of mortgage-related assets, which are long-term in nature and have dynamic cash flow characteristics, they become "risky ventures", the RBI said in its Report on Trend and Progress of Banking in India, 2007-08, released here.

The recent global financial turmoil, caused by the mortgage market crisis in the US, has brought into focus "the dangerous inter-dependence between real estate cycles, bank crisis and the ultimate threat to financial stability", it said.

Anecdotal evidence suggests real estate prices rose 2-4 times during the past 3-4-years in different parts of the country, the RBI said.

Real estate prices affect the economy primarily in two ways, it said.

To read more, please, visit - ZeeNews

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1 comment:

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