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Data from the Reserve Bank of India shows that scheduled commercial banks' commercial real estate portfolios grew nearly 23% year-on-year in March 2024, significantly higher than the 8.52% growth seen the previous year. This surge in commercial real estate lending by banks reflects positive changes in the sector in recent years, including regulatory reforms, growth of real estate investment trusts, and developers taking on less debt, which have boosted banks' confidence. Industry experts expect banks' commercial real estate lending to continue growing strongly due to healthy demand, a clearer regulatory framework, and avenues like REITs mitigating risks.
Stronger regulations, deleveraging by listed developers, and the growth of real estate investment trusts (REITs) appear to have prompted banks to take a less conservative approach towards lending to the Commercial Real Estate (CRE) sector. Advertisement
This is evidenced by data from the Reserve Bank of India showing scheduled commercial banks (SCBs) CRE portfolios grew 22.94% year-on-year as of March 2024, versus 8.52% as of March 2023. In rupee terms, banks' exposure rose by INR 74,006 crore between March 2023 and March 2024 compared to INR 25,342 crore in the previous year. As of March 2024, banks collectively held a CRE portfolio of INR 3,96,579 crore.
Banks' CRE portfolio includes loans extended to builders towards construction of any property which is intended to be sold or given on lease; loans for multiple houses intended to be rented out; loans for integrated township projects; exposures towards development of SEZ; exposures to real estate companies; among others.
Along with the capital market (direct and indirect), exposure of Banks to CRE is reckoned by RBI as sensitive exposure, requiring them to set aside higher capital to give loans to entities in this sector.
Industry experts note several positive changes in the CRE sector in recent years that have boosted banks' confidence, such as regulatory reforms like RERA (Real Estate Regulatory Authority) introducing transparency, REITs (Real Estate Investment Trust) bringing in equity capital, and developers taking on less debt. They expect banks' CRE lending to keep growing strongly due to healthy demand, a clearer regulatory framework, and avenues like REITs mitigating risks. Developers committing to on-time project delivery and quality standards have also attracted more institutional funding.
While CRE loans traditionally carry higher risk weights, banks are increasing such exposure due to factors like the economic recovery driving commercial space demand post-pandemic, an improved investment environment, and REITs providing a structured way to engage in real estate while managing inherent risks. This trend reflects the sector's enduring appeal as a key asset class and a vote of confidence in India's economic growth.
Global institutional investment in Indian real estate has averaged USD 4 billion annually over the past five years, with the office sector receiving half of the amount. Leading APAC countries such as Singapore, Hong Kong, South Korea, and Japan are also gradually eyeing India's growing real estate market. In 2023, investment inflows from the APAC region surged 57% YoY to USD 1.8 billion, of which 70% were in office assets. Keeping up the momentum in Q1 of 2024, institutional investments into real estate touched USD 1 billion, with the office sector's share at 57%. This trend reflects the enduring appeal of the sector as a key asset class and represents a vote of confidence in India's economic growth trajectory from banks.
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