The retail loan portfolio of banks is seeing a marginal shift away from housing and towards unsecured and consumption-based lending.
This is because the housing segment has been seeing a steady decline in growth rate over the last one year.
Reserve Bank of India data show that the pace of growth of home loans declined to 16.4 per cent in November 2014, from 18.1 per cent in the year-ago period.
On the other hand, growth in consumer durables and other personal loans improved to 46.8 per cent (32.8 per cent in the year-ago period) and 16.2 per cent (13.3 per cent), respectively.
“Home loans constitute about 50 per cent of the lending business.
“Though the business is here to stay due to its long duration and sticky nature, there are short-term fluctuations which will happen…The RBI data show that housing has had the lowest growth rate in recent months,” said Jairam Sridharan, Head - Consumer Lending and Payments, Axis Bank.
The offtake of home loans has been slow due to affordability issues and anticipation of correction in housing prices. According to a report by Kotak Institutional Equities, the housing loan segment is a low-margin business and vehicle loans offer slightly better yields, but after adjusting the cost of acquisition and duration of loans, it is not highly profitable. Hence, banks are expected to look at new opportunities to improve profitability.
Loan mix may change
According to the report, a big area would be unsecured loans, as the contribution to profitability is far better than retail loans. It expects the loan mix to change, with used-vehicle financing and loans against property garnering a bigger share.
Pralay Mondal, Senior Group President (Retail & Business Banking), YES Bank, said, “There will be a balancing. Affordable housing is likely to grow primarily due to changes in the Land Acquisition Act and as interest rates are expected to come down.”
Personal loans and credit cards segments are expected to continue growing at 20-25 per cent a year.