Indian banks have shown a significant uptick in lending to the commercial real estate sector, indicating renewed confidence among lenders in the stability and appeal of the real estate market. According to the latest data from the Reserve Bank of India (RBI), the commercial real estate portfolio of scheduled commercial banks (SCBs) grew by a robust 22.94% year-on-year (y-o-y) as of March 22, 2024, reaching an outstanding value of Rs 3,96,579 crore.
This growth represents a substantial increase compared to previous years, with SCBs’ exposure rising by Rs 74,006 crore between March 2023 and March 2024, compared to Rs 25,342 crore between March 2022 and March 2023. The surge in lending to the sector is attributed to various factors including stronger regulations, deleveraging by listed developers, and the increasing presence of Real Estate Investment Trusts (REITs) which have brought equity capital into the market.
The boosters
Regulatory changes such as the implementation of the Real Estate Regulatory Authority (RERA) Act have enhanced transparency and streamlined approval processes, instilling confidence among stakeholders and facilitating easier project delivery by developers. This regulatory clarity has encouraged banks to view the CRE sector as a viable investment option, with reduced perceived risks and improved recovery prospects in case of default.
Industry experts say that recovery from default in the commercial real estate sector tends to be higher due to active market participation, resulting in lower loss given default.
