Housing, infra sector is not starved of bank finance: RBI

Central bank recently exempted banks from maintaining CRR and SLR for funds that are raised through long-term infrastructure bonds

The Reserve Bank of India (RBI) on Wednesday said neither the infrastructure sector nor the housing sector was starved of bank finance.

S S Mundra, who took charge as RBI deputy governor on July 31, denied the infrastructure sector’s claim that banks’ lending to the sector had come down, in his first public speech.

The central bank had recently exempted banks from maintaining the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for funds that are raised through long-term infrastructure bonds for financing affordable housing and the infrastructure sector. Such loans will be exempted from priority sector lending as well. The move was aimed to boost credit flow to the infrastructure sector and to address the asset-liability mismatch of banks.  

While addressing a real estate sector conference in here, the former chairman and managing director of Bank of Baroda said retail loans to the housing sector as a whole had gone up from Rs 2.95 lakh crore as of March 2009 to Rs 5.36 lakh crore by the end of March 2014, growing at a compounded annual growth rate (CAGR) of 15.6 per cent annually.

In the same period, the banking sector’s exposure to the real estate sector as a whole had gone up from Rs 4.57 lakh crore to Rs 9.06 lakh crore. This reflects a CAGR of 14.63 per cent.

“Our review shows that the loan growth in the real estate segment has been strong and therefore the contention that lending has come down does not hold,” Mundra said.

He added the cost of houses in the country is very high and it should be possible to bring it down.

“I believe there is enough scope for home prices to come down from the higher perch because of huge inventory pile-up in several markets. The development in construction technologies should make it possible for the home prices to come down,” he added.

Mundra also said the shortage is severe among the weaker sections of the society. Referring to a RBI report, he mentioned that more than 58 per cent of people from the economically weaker sections and over 39 per cent from the low-income groups do not have access to housing.

The report also mentions that there is a shortage of 18.78 million dwelling units in India and it is set to increase to 30 million by 2020.

Mundra also discouraged the doling out of bank credit for the second and third houses as it might lead to bubble creation in the sector. “You must realise that at the current stage of development of our country, we need bank credit more for creation of productive assets and less for speculative activities. We would not like to create a situation where bank finance is being used by a selected few for buying several houses as an investment and thereby creating artificial demand bubble.”