• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Dinesh Narayanan
Rukmani Vishwanath

MUMBAI, Feb. 4

CURRENT wisdom says housing would form the foundation for an economic recovery. If that is so, then banks appear to be financing all the "brick and mortar'' for building it.

Over the past year, the housing finance (HF) portfolios of most banks have registered consistent growth, almost in tandem with the sectoral growth rate. The top five banks active in the sector have notched up an aggregate growth rate of about 33 per cent in their portfolio in the first nine months of the current fiscal. (We are not even talking about specialist financiers such as HDFC.)

Poor credit absorption by other sectors has focussed the attention of bankers, ever on the look-out for avenues to deploy funds, on retail housing finance (HF). The strategy seems to have struck bankers simultaneously and most of them have not wasted any time in cornering their share of the pie.

Banks, which until now have been lending wholesale, are chasing the retail customer. For banks, the advantage of HF is two-fold — little credit risk and high profitability. The Chairman, SBI, Mr Janki Ballabh, said: "The availability of finance has improved significantly these days. Banks and financial institutions have become aggressive in marketing housing loans.''

Corporation Bank led in terms of aggression, with a 56 per cent growth rate during the period. But, leveraging on its sheer size, State Bank of India accounted for about 75 per cent of the total growth of the five banks. The aggregate increase in the HF portfolio of these banks was about Rs 2,700 crore, from about Rs 8,300 crore to more than Rs 11,000 crore. SBI accounted for more than Rs 2,000 crore of the incremental lending.

A significant characteristic of the growth is that the borrowers are largely "middle-class'' customers. The favourite loan bracket appears to be between Rs 5 lakh and Rs 15 lakh and the most popular coupon 11.50 per cent floating, offered by most banks. The most preferred tenor is the 15-year bracket, for which the equal monthly instalment works out to about Rs 1,000-1,200 per lakh.

A perception that prices have bottomed out is attracting genuine buyers who have been waiting and watching till now. Says the Managing Director, ICICI Home Finance, Ms Madhabi Puri Butch: "Most of the customers are genuine buyers. Speculators have almost left the market because of the slump. A lack of other investment avenues has made housing loans very attractive to the common man, who is now looking at it as an inflation-proof investment. Mr Ballabh adds: "Tax exemptions have made this segment very attractive. Banks too have realised that housing is a relatively risk-free segment to lend to. The interest rates have also been coming down over the past year from 14-15 per cent to around 11.50 per cent at present,'' he said.

The Executive Director of Bank of Baroda, Mr Anil Khandelwal, echoes the sentiment, "Credit offtake by corporates is low on account of recession and in lending to this sector, the margins are usually better and recovery is assured as borrowers are usually creditworthy. Besides, the property itself is good collateral.'' As a result of this renewed focus on the retail segment by banks, their wholesale business is coming down. This also pits banks in direct competition with niche financiers.

According to the Executive Director, Bank of India, Mr O.N. Singh, "Even though banks have been financing the wholesale segment, the focus has now shifted to retail because of the higher margins and lack of wild demand fluctuations. As a result, while individual housing loans are being marketed aggressively, the wholesale business is declining.''

There is, however, a slight difference in banks' presence in the housing segment then and now. Earlier, the presence was mainly because regulations required them to lend 3 per cent of incremental deposits to this sector. The recent trend, however, is evidently driven by the lure of the lucre.

Send this article to Friends by E-Mail

Stories in this Section
RBI Report on Currency and Finance, 2000-01 -- Policy-makers vs econometricians

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line