Finance Ministry suspected that the real estate companies have not been depositing the money they have been collecting by booking their products making the real estate loans more vulnerable.

“Some 15 per cent of the total booking amount has yet not come to the banking channel,” said finance secretary Krishnahari Baskota.

However, the real estate developers have claimed that they have been honestly depositing the booking amounts. “We have also been serving the interests, though it’s difficult for us due to slowdown in the business,” said one real estate developer without wanting to be quoted. But the ministry has calculated that the 15 per cent of the total booking amount has still been out of the banking channel and is under heavy risk.

The banks and financial institutions have lent around Rs 100 billion to the real estate, according to the data. The slowdown in the real estate has hit the banks and financial institutions as they have to provision more for the loans that are gone bad.

On one hand the banks and financial institutions have been under pressure to maintain Credit to Deposit (CD) ratio — according to the central bank’s directives — and on the other, their loan to the real estate sector has been under risk due to slowdown in the real estate business adding pulling their growth rate down. The profit growth rate has come down to almost half in the third quarter compared to the same quarter of last fiscal year.

Some of the banks and financial institutions have managed to sail through the crisis but others have been feeling the heat which has been reflected in their third quarter report.

The overall all profit growth rate has gone down with increased loan loss provisioning and non-performing assets. The average non performing assets of the banks that stood at 3.5 per cent by the end of the second quarter have gone up to almost four per cent due to single sector concentration in the real estate, according to the banks.

The banks, however, claimed that their loans to the real estate sector has not gone bad but has been delayed due to slowdown in the business. Similarly, the real estate developers have been asking the government to pump Rs 25 billion into the sector to resurrect it.

source:The Himalayan Times,14 May 2012