Paradoxically, at a time when the real estate sector is believed to be showing signs of recovery, growth in home loans by scheduled commercial banks is steadily declining. Reserve Bank of India’s data shows that fiscal year-to-date (July 2017) growth was at an appalling low of 0.4% compared to 4.7% in the same period a year ago.
Monthly data over the last four years from the Centre for Monitoring Indian Economy shows a declining trend in the growth rate since September. July’s 10.5% year-on-year growth is the lowest since August 2012.
Demonetisation and lack of clarity in the implementation of the Real Estate (Regulation and Development) Act brought new launches and sales of existing projects in the residential arena to a standstill for a few months, lowering demand for loans.
Meanwhile, any offtake of loans in the affordable housing segment would not stack up to boost growth as such loans are of lower ticket size (below Rs20 lakh).
Some analysts reckon that a slowdown in the job market, with information technology and financial services sectors seeing uncertainty, has also led to lower demand for big-ticket loans.
That said, the mid-sized non-banking financial companies have posted aggressive growth in the last 12-18 months, albeit on a low base. Meanwhile, large housing finance institutions like Housing Development Finance Corp. Ltd and LIC Housing Finance Ltd are still optimistic on retail lending. Forecasts point to 20%-plus growth rate in the next two years for these large housing finance companies that gobble almost half the share of outstanding home loans.
Stiff competition has pushed banks to lower retail lending rates. According to Kotak Institutional Equities Research, “This segment will remain the largest product offering for banks and will grow at 15-17% compounded annual growth rate between FY2016 and FY2020. Contribution from this portfolio may decline to 49% from 52% at present.”