Commercial banks are still disbursing home loans at a break-neck speed as there is no slowdown in the demand for mortgages, despite some signs of moderation in the rate of growth in bank credit.
The unabated growth in home loans may prompt the Reserve Bank of India (RBI) to further increase risks weights on such loans and make them expensive. The risk weight on home loans is now 15 per cent. The objective will be to dampen the demand by making loans dearer.
Housing loans are driving retail loan growth with a 54 per cent increase in the year to June 2006. Total housing loans outstanding at the end of June 2006 were Rs 1,71,917 crore (Rs 1,719.17 billion), up by Rs 60,495 crore (Rs 604.95 billion) from a year ago.
"Interest rates have gone up but home loans are growing at a faster pace in 2006-07," said a banker.
Housing Development Finance Corporation disbursed Rs 11,280 crore (Rs 112.80 billion) of loans in the first half of 2006-07 against Rs 8,910 crore (Rs 89.10 billion) a year ago.
ICICI Bank, the country's second-largest commercial bank, which has been driving the retail loan growth over the last two years, disbursed a total of about Rs 13,400 crore (Rs 134 billion) in the first half of this year.
State Bank of India, the country's largest commercial bank, disbursed another Rs 4,800 crore (Rs 48 billion) of home loans during April-September 2006.
Credit growth has shown no signs of slowing down though the RBI had indicated its concerns over the high credit growth in its 2006-07 annual policy in April.
Bank credit is growing at over 30 per cent for the second year in a row in spite of interest rate hikes and other prudential measures by the RBI.
The RBI has increased the provisioning requirement on residential housing beyond Rs 20 lakh (Rs 2 million) to 1 per cent, along with capital market exposures, personal loans and commercial real estate.
