"We are scrutinising all types of fund flows into the sector but no decision has been taken on whether to curb them or not," said R Gopalan, secretary in the financial service department of the finance ministry.

The Reserve Bank of India (RBI) has been cautioning banks against lending to the sector and asked them to continuously monitor the money going in. On their part, banks have curtailed lending to real estate firms. The total outstanding of banks to the real estate sector stood at Rs 88,581 crore as on November 21, 2009. The banks exposure to the real estate sector has gone down by a little over Rs 8,000 crore between June and November 2009. In a speech last week RBI deputy governor Usha Thorat had said that banks were expected to monitor their exposure to commercial real estate so as to limit the risk of a downturn in the sector.

"Although no regulatory limit is specified in this regard, RBI keeps a close watch on each bank's exposure to commercial real estate through offsite surveillance and initiates corrective actions where necessary."

Source: Realty Plus Real estate fund flow under watch