Housing loans' share in total advances rose to 14.2% in 11 years: RBI report

According to the Reserve Bank of India's Financial Stability Report (FSR), the share of residential housing loans in total advances has steadily increased over the past eleven years, reaching 14.2% in March 2023 compared to 8.6% in March 2012. The report also highlights the healthy growth of the housing sector, with sales increasing by 21.6% in the fourth quarter of the fiscal year 2022-23. New launches have also seen significant growth, indicating strong demand from end-users.

The report states that the banking system's total exposure to real estate stood at 16.5% of total loans in March 2023, with loan defaults remaining below 2%. The secured nature of these loans and loan-to-value ratio regulations contribute to the low default rate. Indians have historically demonstrated a preference for avoiding loans and prioritizing quick repayment, particularly in the case of home loans. Home ownership is seen as a source of pride and accomplishment, motivating individuals to avoid loan defaults and the risk of losing their homes.

Regulations and guidelines set by the Reserve Bank of India (RBI) regarding home loans also play a vital role in maintaining the low non-performing asset (NPA) rate. Factors such as the implementation of the Real Estate Regulation and Development Act (RERA) and the impact of the pandemic have contributed to notable growth in demand within the residential housing segment. As a result, the share of home loans in the overall retail loan portfolio has increased.

RBI data reveals that housing loans outstanding, including priority sector housing, reached Rs 19,36,428 crore in March 2023, marking a 15% year-on-year increase. The report further highlights a significant increase in the all-India house price index (HPI), with the highest growth in seventeen quarters recorded in the fourth quarter of 2022-23. House sales experienced a growth rate of 21.6% during this period, while new launches also maintained healthy growth, reflecting strong demand from both end-users and investors.

The report mentions an increase in unsold inventory during the January-March period of 2022-23, resulting in a rise in inventory overhang. However, the positive news is that the house price gap (actual price minus trend) is closing after a period of around three years. A positive house price gap indicates a concentration of credit and vulnerability in the housing market.

The RBI's 'Basic Statistical Return on Credit by Scheduled Commercial Banks in India - March 2023' reveals that the share of loans bearing an interest rate over 9% rose to 56.1% in March 2023, aligning with the monetary tightening measures implemented since May 2022. The central bank raised interest rates to combat inflation following global supply disruptions caused by the Russia-Ukraine conflict. While the benchmark lending rate increased by 250 basis points, the RBI refrained from raising rates in its last two bi-monthly monetary policy reviews.

Content source: RBI reports

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