Home Loan party over
APRIL 11, 2007: Bankers expect growth rate
to halve to 15% in '08. The era of easy access
to Home
Loans appears over following the 300-basis-point
increase in home loan rates and a near-doubling
of property prices in 2006-07. As a result,
bankers expect home loan growth rates to halve
this financial year.
Home loan growth rates are expected to fall
to 15 per cent after two years of robust 33-35
per cent growth and sharply below the expected
overall credit growth of 22-24 per cent.
"The RBI's policy measures can be taken as
a signal to bankers to exercise caution on
the real estate sector, including home loans,"
said a senior official of a large public sector
bank.
Almost 18 per cent of the increase in banks'
non-food credit in 2006-07 was on account
of home loans and another 5 per cent on account
of loans to the commercial real estate sector.
In 2005-06, home loans accounted for 12 per
cent of the total loans.
Banks have already started becoming more
selective in providing home loans. For one,
they have altered the loan-to-value (LTV)
ratio. Till recently, borrowers could avail
of loans up to 90-95 per cent of the purchase
cost of a residential property. Now banks
are selectively moving to an 80 per cent LTV,
the norm prevalent over three years ago.
Besides, the rise in interest rates is also
making it more expensive for consumers. Every
100-basis-point increase in the interest rate
on home loans knocks off nearly Rs 1 lakh
from the amount an individual is eligible
to borrow. Thus, borrowers who were earlier
eligible for, say, a Rs 20 lakh loan, will
now be able to borrow Rs 17 lakh. Many banks
have held rates for existing borrowers but
raised the rate for new ones.
In 2006-07, many banks also introduced prudential
ceilings on exposure to the overheating real
estate sector, including home loans. Each
bank has set the exposure ceiling on the basis
of its risk profile and asset mix. Home loans
form 12-35 per cent of the loan portfolios
of banks.
One large public sector bank has already
hit the ceiling its board had set for home
loans and commercial real estate exposure
for the current financial year.
For ICICI Bank, which accounts for over 25
per cent of the mortgage market, exposure
to home loans at the end of December 2006
was Rs 59,700 crore, over 34 per cent of the
bank's total advances portfolio of about Rs
1,72,000 crore. With demand slowing, the share
of home loans is expected to fall substantially.
Source: Business Standard
