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SBI Rethinks Construction Loans: Accountability Key
20 Dec
Summary
- SBI to reassess residential construction finance policy.
- Accountability and transparency will determine loan interest rates.
- Developers need 40-50% tenant commitment for office space loans.
State Bank of India (SBI) is considering a policy reassessment for residential real estate construction finance. Chairman C S Setty highlighted that accountability and transparency will be paramount in determining interest rates for such loans. While SBI currently has a minimal presence in this sector, it is actively building its portfolio in commercial real estate, particularly office spaces.
Setty advised developers seeking construction finance for new office spaces to ensure a commitment of 40-50% from potential tenants. He stressed the importance of having occupied spaces to mitigate lender risk. This cautious approach stems from past experiences where aggressive lending in residential real estate led to significant losses for some institutions.
Regarding interest rates on construction finance, SBI's chairman explained they are linked to the Marginal Cost of Funds based Lending Rate (MCLR), which is revised in tandem with term deposit rates. He also urged Non-Banking Financial Companies (NBFCs) in housing finance to reduce operational costs to offer more affordable loan rates.
