The Reserve Bank of India (RBI) is examining the risks of widespread home-loan defaults in the country on the lines of what the US is going through.
The apex bank is collecting data from banks on the impact of interest-rate hikes and the consequent fall in real-estate prices, so that appropriate intervention can be evolved, according to banking sources who wished not to be quoted.
Besides, experts are of the view that India is not susceptible to the risks of default in subprime mortgages, essentially loans to risky creditors. The fear in the US is that delinquency in this segment could pull down real-estate prices.
K.C. Chakrabarthy, chairman and managing director of Indian Bank, said: “Subprime lending in the US caters to buyers without a good credit record. Unlike in the US, we are lending to salaried individuals. For such loans, no defaults are seen in the US as well. However, it is for individual banks to assess their exposure to non-serious buyers, and take precautions.”
RBI’s concern arose from soaring real-estate prices and booming construction activity fed by debt. Loans to builders more than doubled to Rs36,682 crore in 2005-06, according to RBI data. Housing loans grew by around 45% to Rs1.86 lakh crore over the same period.
Vineet Gupta, head of financia-sector ratings of Irca Ltd, said: “About 65% of the home loan portfolio in the country is held by four institutions: the State Bank of India, ICICI Bank, HDFC and LIC Housing Finance. Loan delinquency with them is insignificant.”
Also, by giving borrowers a choice of higher monthly repayments or an elongated tenure, banks are trying to ease the burden of rising interest rates on borrowers.
Ananda Bhoumick, senior director of Fitch Ratings India, said: “The level of bank loans for housing in India cannot be compared with that in the US. And there are no ‘clean’ loans (without the backing of a security) offered here. Thus, this problem is taken care of.” Housing loans accounted for a meagre 13.3% of the total non-food gross bank credit on 31 March 2006.
In its recent credit policy review, RBI asked banks to keep aside 2 paise for every rupee lent to real estate, the capital market and credit cards.
This is up from the 1 paisa per rupee they were required to keep aside for provisioning earlier.
The move was aimed at containing bubbles in asset prices.