 "Home Loan EMI")
The share of home loans in retail advances of banks in November declined to 47.2 per cent from 48.7 per cent a year ago while that of unsecured loans gained.
Home loans constituted over 50 per cent in retail loans in 2021.
According to the latest data by the Reserve Bank of India (RBI), the share of unsecured loans (including credit card, personal loan and consumer durables) increased from 30.91 per cent to 33.83 per cent between 2021 and 2023.
Unsecured loans of banks were at Rs 15.35 trillion in November 2023 from Rs 12.47 trillion in the same month last year. As of November 17, 2023, home loans were at Rs 21.77 trillion in comparison to Rs 18.94 trillion in the year-ago period.
The figures exclude the impact of the merger between HDFC and HDFC Bank for year-to-year comparison.
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According to experts, growth in home loans was slower than in other segments, including personal and credit-card loans, which is likely to have caused the market share of housing loans to decline.
“Housing loans of banks continue to grow at around 15 per cent year-on-year, in line with historical trends. However, some other segments such as credit card receivables, consumer durable loans, personal loans, education loans, vehicle loans and gold loans have registered much higher growth rates. This has resulted in a decline in the share of housing loans in the overall personal loans of banks,” said Manushree Saggar, senior vice-president, ICRA.
On a year-on-year basis till November, loans outstanding on credit cards grew 34.2 per cent while the other personal loan category increased 21.7 per cent. Housing loans grew 15 per cent.
Also, the elevated interest rates are also likely to have reduced the pace of the high ticket size business. The benchmark repo rate increased 250 basis points (bps) between May 2022 and December 2023.
“In the last two years, interest rates have increased and home-loan rates have gone up. Also, home loans are essentially a bigger ticket size business. During the time period, there is a possibility that the bigger ticket-size loans might have reduced whereas there was growth in housing loans of smaller ticket size,” said Archis Jain, chief executive officer (CEO), SRG Housing Finance.
“We are a housing finance company focused on rural areas. Loan growth in this segment is robust. Because of the low ticket size, this segment, being mostly informal, is able to show growth due to small equated monthly instalments, supported by good monsoon. This has resulted in higher growth for loans in small ticket sizes.”
In November 2023, the Reserve Bank of India (RBI) increased the risk weighting for unsecured loans disbursed by banks and non-banking financial companies (NBFCs) by 25 percentage points.
The home loan market share is likely to improve as the pace of the unsecured portfolio is likely to see moderation on account of elevated risk weighting.
Also, the decline in interest rates will also support the growth of home loans in the overall portfolio.
Also, a report by BankBazaar noted that owing to easing inflation and a reversal in the trend in interest rates, the housing market was likely to surge to new heights. Also, the increase in risk weighting implies that banks will prefer to lend to prime borrowers.
“We can expect home loans to grow more strongly in the coming quarters once interest rates begin to fall. At the same time, there’s caution in the market and the higher risk weighting is going to have an impact on how fast unsecured loans grow, especially small ticket loans,” said Adhil Shetty, CEO, BankBazaar.com.
