MUMBAI: As loans in infrastructure and small businesses turn bad and corporates fight shy of making fresh investments, banks are finding home loans a safe haven. As a result, home loans are among the fastest growing segments at 13.5% in the first nine months of the fiscal. This is good news for borrowers as banks are offering a better deal to home loan customers than to top corporates.
Data released by the Reserve Bank of India on sectoral growth of credit shows that bank loans to housing rose 13.5% during April to December 2013 to Rs 5,18,500 crore. Last year, the growth in outstanding home loans for the same period was 11%. This comes at a time when overall bank credit has grown 9.1% and credit to the industry has grown by only 8.1%.
According to Arundhati Bhattacharya, chairman, State Bank of India, bad loans in home segment are very low. This reduces the cost of credit for lenders as the bank does not have to set aside large amounts for defaults. This enables the bank to provide loans up to Rs 75 lakh at 10.1% for women and 10.15% for men.
Announcing the bank's results on Wednesday, Chanda Kochhar, MD & CEO, ICICI Bank, said that the lender has managed to grow its loan book largely due to retail loans. "We are continuing to strengthen retail franchise and pursuing growth in retail mainly secured housing and auto loans. Quarter-on-quarter, we have been able to increase share of retail to 30% of loans and advances. The bank's retail loans have grown 22% and mortgages have grown 23%."
Shinjini Kumar, director, PricewaterhouseCoopers, said, "Banks consider home loans as safe because the loan-to-value ratio in home loans is low." She added that the tax structure also encourages the purchase of second house as an investment as the interest expenditure on the home loan can be used to offset earnings from the property. "Individual companies may not see the risks in their portfolio but if such lending increases, there is a possibility that risks may build up in certain pockets. Once you go out of the large cities, it becomes difficult for banks to source quality borrowers and this results in concentration of loans in certain pockets and this could lead to risks at the systemic level," said Kumar.
Bankers across the board said that housing was seen as a safe option at a time when bad loans were on the rise in infrastructure, metals and textiles - the top three segments in terms of bank lending and also in terms of non-performing assets. "In the personal loans segment, consumer durables and housing showed an increase, while vehicle loans witnessed lower growth in this year. Credit card loans, though not very significant in the overall credit, has also witnessed negative growth. Given that large part of the auto industry sales is driven by bank credit, this lower growth number could be indicative of slow growth in this segment," Madan Sabnavis, chief economist at Care ratings, said in a report.