Banks cut down on lending to real estate

Banks cut down on lending to real estate

Mumbai: Reserve Bank of India (RBI) data shows that banks are cutting down on loans to real estate and reducing exposure to credit card debt. Loans to real estate increased by a mere 0.9%, while credit card outstandings have fallen by 28.3% in the year to 26 February.

Real estate loans are loans to builders and are distinct from housing loans.

Between 20 November 2009 and 26 February, credit card outstandings went down from Rs22,635 crore to Rs20,737 crore. Outstandings on account of real estate loans, however, went up from Rs88,581 crore to Rs91,607 crore.

Growth in lending to real estate has been steadily declining, from 41.5% year-on-year (y-o-y) as on 28 August 2009 to 15.3% as on 20 November 2009, and now to 0.9%. This suggests that the widely expected higher capital requirements for lending to the realty sector by RBI may not be necessary. Housing loans, which are loans to individuals and distinct from loans to real estate, have gone up by a tepid 8.3% y-o-y, although the rate of growth has been steadily increasing. In November 2009, for instance, the rate of growth of housing loans was 7.3%.

Education loans have been the fastest-growing component of personal loans, rising 31.2% y-o-y.

In the services sector, bank lending to professionals showed the highest rate of growth, at 36.9% y-o-y. Banks continued to lend hand over fist to non-banking financial companies and these loans grew 25.8%.

Loans to infrastructure continued to grow strongly at 42.3% y-o-y, although the pace slowed from 47.2% y-o-y in November. Construction loan growth was meagre at 8.1%. Banks’ exposure to the petroleum, coal products and nuclear fuels sector continued to decline, albeit at a slower pace.