Banks to bet on home loan disbursal to improve credit offtake

Although economy is recovering and also the recession is over still the credit growth is sluggish and also the corporate credit has not yet taken off, therefore banks are making final effort to widen their loan portfolio through home loans.

However after a break in 2008 and early 2009 the employment prospects are improving and income becoming steady, a gradual increase in demand for houses can be seen. The banks festive home loan schemes have helped in stimulating the recovery.

Albert Tauro, chairman and managing director, Vijaya Bank pointed out, "There has been some pick-up in retail demand following the introduction of festival home and car loans at attractive interest rates which is improving the credit offtake scenario".

The big lenders such as State Bank of India and ICICI Bank are betting on this opportunity to grow their retail loans, especially home loans, to support their overall credit expansion. Home loans cover at least 6-10% of the total credit portfolio of most of the banks.

As per the latest RBI data the year-on-year growth of bank’s total loans has declined to single digit and as on October 30 it was just 9.5% as against 28.4% a year ago.

According to RBI's macroeconomic report as on August 28, the total outstanding housing loans of banks amounted to Rs 2.85 lakh crore, or 10.8% of total loans.

For the fiscal 2009-10, in the first eight months home loans had increased by 4.5%. While in July-September most of the banks had reported at least 20-25% growth in their home loan, and are hoping to see a similar trend in the coming quarters.

Bank of Baroda chairman M D Mallya, last week had informed that the bank’s home loans has grown by 25%. According to S L Bansal, general manager -- retail banking, Union Bank of India’s home loan book has registered a growth of 24-25%.

On the other hand Housing Development Finance Corporation, the country's largest home loan lender is already flooded with loan applications, a joint manager director Renu Karnad informed.

Karnad said, "The segment where we are seeing good demand is in the price range of Rs 30-50 lakh in metros and bigger towns and around Rs 20-25 lakh in smaller towns."

The banks are getting large number of loan applications and bankers are likely to disburse the loans to the applicants in the coming months, thus giving boost to the overall disbursals of banks. Also there has been increase in the demand for home loans as banks have extended their special home loan schemes under which they are offering lower fixed rates, therefore banks are trying to cash in the increasing demand.

Recently State Bank of India has extended its special 8% home loan scheme up to March 31. Every month SBI is disbursing loans of around Rs 2,000 crore, chairman O P Bhatt had said on October 31.

After SBI, Corporation Bank has also extended its scheme to March 31 whereas Axis Bank has recently announced a special scheme under which it will offer loans at 8%. The Union Bank of India has launched a scheme under which the borrowers will have to pay 8.5% fixed rate for the first three years.

But sharp increase in property prices can cause risk to the rising demand in home loans. While HDFC's managing director Keki Mistry think property prices have to reasonable then only the rising demand can become a concrete boom. . "People do not buy houses just based on interest rates," Mistry said on Monday.

In major metropolitan cities the property prices have already started moving up, in Mumbai and New Delhi property prices have raised sharply. "We are seeing some pick-up in demand for home loans. But for this demand to sustain, builders will have to maintain prices at current levels, else demand will get diluted," Punjab National Bank's chairman and managing director K R Kamath said.

On the other hand some bankers say in most of the areas the rise in property prices is not sharp, and might not affect the demand. The another risk to the rising demand is the expected turn in interest rate cycle as the Reserve Bank of India is preparing strategy to withdraw the accommodative policy. But some of the bankers say the impact on banks' lending rates of the monetary policy withdrawal will be visible only by March-end.

According to Bansal of Union Bank of India, "I don't think it (rates) will go up much. If rates go up, it will be mostly in February or March. And I don't think property prices will go up in a big way. The government is investing in affordable housing also". Although rising home prices might pinch buyers' pockets but affordable home loans appear to stay for long period.

However there are fears that rapid expansion of home loan at the time of potential rise in housing prices might also increase banks’ non-performing assets (NPAs). For instance, in July-September State Bank of India has seen a sharp rise in its net NPAs , mainly due to its retail portfolio. The banks’ net NPAs have increased to 1.73% by September from 1.55% as of June 30.

Well in the coming quarters demand for home loans is expected to remain strong. But bankers have to maintain asset quality as they give home loan to stimulate credit off take.