Builders are expected to cut house prices as the Reserve Bank of India (RBI) has refused to let lenders to restructure stressed real estate loans without providing for potential losses.

People with direct knowledge of the matter said that the RBI turned down banks' request for restructuring the loans without providing for losses as it thought that banks would stop insisting on prompt payments from builders it they demand was accepted. In turn, builders would keep on hold onto prices even amid slowdown in demand.

The two bankers, who were speaking on the condition of anonymity, said that RBI Deputy Governor KC Chakrabarty was of the view that banks would be free from anxiety once the stressed real estate were protected from turning into a sub-standard asset.

Overall real estate bad loans jumped 55 per cent, from Rs 41,700 crore on March 31, 2011 to settle at Rs 64,900 crore on March 31 this year.

Property prices have been on the rise since the union government pushed the RBI to offer a one-time benefit for restructuring of real estate loans during the economic slump in 2008. But, house prices have escalated through the roof, pushing home sales down.

Figures released by the central bank show that house prices at an all-India level jumped 6.7 per cent in the first three months of current financial year. In case lenders pressurize builders to repay loans, then it could lead to a decline in prices.