July 3,2023: The share of residential housing loans in total advances has increased over the last 11 years to 14.2% in March 2023 from 8.6% in March 2012, according to the latest Financial Stability Report (FSR) by the Reserve Bank of India (RBI). During this period, the share of commercial real estate (CRE) in total loans has hovered between 2% and 2.9%. The total exposure of the banking system to real estate stood at 16.5% of total loans in March 2023. Given the secured nature of these loans and loan to value (LTV) ratio regulations, loan defaults remain less than 2%. The non-performing asset (NPA) rate in the home loan segment remains low. The regulations and guidelines set by the RBI pertaining to home loans play a crucial role in maintaining this low NPA rate.
The residential housing segment has experienced notable growth in demand, thanks to factors such as the implementation of Real Estate Regulation and Development Act (Rera), and the impact of the pandemic. Consequently, the share of home loans in the overall retail loan portfolio has increased. According to the RBI’s report, housing (including priority sector housing) loans outstanding in March 2023 was Rs 19,36,428 crore, up 15% YoY. The report further said the all-India house price index (HPI) recorded its highest increase over the last seventeen quarters (4.6% YoY) in the fourth quarter of 2022-23. On a QoQ basis, HPI has been rising over the last one year and inched up further by 0.6% during January-March.
The FSR also said that during Q4 FY 22-23, house sales grew by 21.6% and new launches also maintained healthy growth, reflecting strength in demand by end-users as well as investors. The rise in unsold inventory resulted in an uptick in the inventory overhang in January-March of 2022-23. The report noted that with strong demand for houses in the post-pandemic period, the house price gap (actual less trend) is closing after a period of around three years. A positive house price gap is an early warning of concentration of credit and vulnerability in the housing market. As per the RBI’s ‘Basic Statistical Return on Credit by Scheduled Commercial Banks in India – March 2023’, the share of loans bearing over 9% interest rate rose to 56.1% in March 2023, in tandem with the monetary tightening measures starting May 2022.
The RBI started raising interest in May 2022 to rein in inflation in the wake of global supply disruptions, following the Russia-Ukraine war. Since then the benchmark short-term lending rate has increased by 250 basis points. However, the RBI did not raise the rate in its last two bi-monthly monetary policy reviews.
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Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
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