The Reserve Bank of India has issued revised guidelines on banks’ exposure to commercial real estate. The strategies say about the property where repayment of loans solely depends on the property itself and not on its expected profits.
Where repayment mainly depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc, the exposure would not be counted as Commercial Real Estate.
Banks may extend funds to public agencies for acquirement and development of land, provided it is a part of the complete project. Where land is obtained and developed by state housing boards and other public agencies, banks may extend credit to private builders on commercial terms by the way of loans linked to each specific project. Banks have no right to extend facilities to private builders for purchase of land even as part of a housing project.
Bank finance can also be approved to individuals for purchase of plot, in such case a declaration is needed from the borrower that he intends to construct a house on the said plot.