The Reserve Bank of India (RBI) has raised an alarm on the formation of an asset bubble and has asked commercial banks to exercise utmost caution while lending to realtors and to home buyers. This could cause a liquidity problem. "Regulatory measures by the RBI will have a considerable impact on the real estate sector during 2011. Any increase in risk weights on bank lending to real estate companies would adversely affect the amount of funding available to the industry and cause liquidity problems, as the majority of companies are highly leveraged and their dependence on debt refinancing is high," cautions Fitch Ratings, in a report on the real estate sector. Though the RBI has taken several steps, it could again tighten the norms in case of further rise in prices.
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