Mumbai: The Reserve Bank on Tuesday expressed concerns at galloping rise in prices of shares in stock markets, gold and property, but refrained from saying whether there is asset bubble in the economy.
“Although the income levels of households and earnings of corporates in India have continued to rise, a sharp rise in asset prices in such a short time causes concern,” RBI said in its second quarter monetary policy review.
It said excessive global liquidity and higher market returns is bringing in more foreign capital into the country, which is leading the equity market close to its peak.
Benchmark equity index Sensex has already crossed 20,000 points, just over 100 points shorter than all time high of 21,207 it saw in January 2008.
On housing and gold prices also, RBI noted: “Residential property prices in metropolitan cities have gone beyond the pre-crisis level. Gold prices are ruling at an all-time high level.”
Gold prices had touched a high of Rs20,120 per 10 grams on 15 October. Currently the price of the yellow metal is Rs19,800 per 10 grams.
The central bank said that huge capital inflows in the emerging market economies has resulted in appreciation in domestic currency and accordingly a surge in asset prices.
To restrict the possibility of happening of an asset bubble, the RBI today asked the banks to set aside more money for offering housing loans.
Expressing concern at rising asset prices, RBI capped housing loans to 80% of the value of the property, and raised risk weight on loans of at least Rs75 lakh.
The central bank upped risk weight on housing loans of Rs75 lakh and above to 125%. Thus, banks will now have to keep more money aside for giving housing loans. The current weight ranges from 50-100%.
“Clearly RBI believes that there is a speculation going on in the property market and they want to curtail that. RBI has come heavily on the realestate sector. In larger cities, like Delhi, Mumbai, there is too much euphoria going on, but same is not true in case of Tier II cities.
“In Delhi and Mumbai prices had dropped by 25% from the peak during recession. Now, it has again risen back to pre-crisis level or even more,” global property consultant Jones Lang LaSalle Meghraj (JLLM) country head Anuj Puri said.