Banks bet on home loan disbursals

Aparna Iyer & T Bijoy Idicheriah /

Mumbai: At a time when sluggish credit growth is threatening to
 stunt the evident overall recovery, and corporate credit is also not
 yet taking off, banks are making a last ditch effort to expand their
 loan portfolio through home loans.

With an improvement in employment prospects and income turning
steady after the lull in 2008 and early 2009, demand for houses is
growing gradually.Festive season home loan schemes just added
 the much-needed fuel to this recovery.

"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," said Albert
 Tauro, chairman and managing director, Vijaya Bank.

Big lenders such as State Bank of India and ICICI Bank are
betting on growth in retail loans, especially home loans, to
prop up their overall credit expansion. For most players,
home loans form at least 6-10% of their total credit portfolio.

Year-on-year growth in banks' total loans has slowed to
single digit and was just 9.5% as of October 30 compared
 with 28.4% a year ago, according to the latest RBI data.
As of August 28, outstanding housing loans of banks were
 Rs 2.85 lakh crore, or 10.8% of total loans, the RBI's
macroeconomic report showed.

In the first eight months of 2009-10, home loans had
 grown 4.5%. Most banks witnessed at least 20-25% growth
 in their home loan book in July-September, and expect
 to see a similar trend in the coming quarters too.

Last week, Bank of Baroda chairman M D Mallya had said
the bank's home loans have grown 25%. Union Bank of India's
 home loan book has grown 24-25%, according to S L Bansal,
 general manager -- retail banking.

Housing Development Finance Corporation, the country's
largest home loan lender, is already witnessing a rise in
 loan applications, according to joint managing director
Renu Karnad.

"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," Karnad said.

With loan applications rising, bankers expect to turn these
into disbursements in the coming months, thereby giving
 a fillip to the overall disbursal of banks. Banks are also
cashing in on the rising demand by extending their special
 home loan schemes that offer lower fixed rates.

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

Following SBI, Corporation Bank extended its scheme
to March 31 while Axis Bank also announced a special
scheme through which the bank will dole out loans
at 8%. Union Bank of India has a scheme wherein
borrowers will have to pay 8.5% fixed rate for the
 first three years.

However, a sharp rise in property prices could pose
a risk to the rise in home loans.
HDFC's managing director Keki Mistry feels property
prices have to be reasonable for the pick-up to turn
into a concrete boom. "People do not buy houses
just based on interest rates," Mistry said on Monday.

Property prices have already started inching up in
 major metropolitan cities, and the rise has been
sharper in Mumbai and New Delhi. "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.

Nevertheless, some bankers said the rise in property
 prices in most areas is not sharp, and may not dampen
demand.Another risk is the expected turn in interest rate
cycle as the Reserve Bank of India readies a strategy to
withdraw the accommodativepolicy.

But some bankers noted that monetary policy
withdrawal could have an impact on banks' lending
rates only by March-end.

"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," said Bansal of
Union Bank of India. Rising home prices may pinch buyers'
pockets but affordable home loans seem set for a long stay.

There are fears that a rapid home loan expansion,
amid a potential rise in housing prices, may also push
 up banks' non-performing assets (NPAs).For instance,
State Bank of India witnessed a sharp rise in its net NPAs
in July-September, driven mainly by its retail portfolio.
The bank's net NPAs rose to 1.73% by September
 from 1.55% as of June 30.

Demand for home loans is expected to remain strong
in coming quarters.What bankers need to watch out for
is maintaining asset quality as they give a home loan
push to credit offtake.