Date:23/04/2007 URL: http://www.thehindubusinessline.com/2007/04/23/stories/2007042304590100.htm

Back Public sector banks' home loan growth rate slowing down

K.R. Srivats

Loan disbursement growth falls to 21% from over 40%

Sources have for some time been cautioning that a combination of rising interest rates, high cost of real estate and higher margins in bank loans would slow down growth in home loan portfolios.

New Delhi April 22 The housing loan party may not quite be over for the nation's public sector banks. But there is concrete evidence that the tempo may at least be slowing down.

The loan disbursements which grew by over 40 per cent in the two years prior to the fiscal 2006-07 have seen these banks posting a growth rate of just 21 per cent in the year just gone by (2006-07).

The portfolio grew from from Rs 1,11,639 crore to Rs 1,35,052 crore, according to information available from sources in the Finance Ministry.

Contrast this with a more than 100 per cent rise over a two-year period between 2004 and 2006 that saw the home loan portfolio move up from Rs 53,737 crore to Rs 1,11,639 crore. Of course, it would have been an even more depressing tale of sluggish growth, but for a few banks continuing to register smart rise in their portfolios.

Official sources said seven banks had registered over 30 per cent increase in their home loan portfolio during the 2006-07 fiscal.

Bank of Baroda has seen a 38 per cent rise in its portfolio last year compared to the previous year. A few smaller banks such as Dena Bank (59 per cent) and United Bank of India (46 per cent) have recorded much higher growth rates than the rest (See Table).

Banking industry sources have for some time been cautioning that a combination of rising interest rates, high cost of real estate (which however has shown some signs of coming down from the year-high perch) and higher margins in bank loans would slow down growth in home loan portfolios.

The Government has on its part been keen that the impact of high interest rates should somehow be softened on the small and medium borrowers. The Finance Minister, Mr P. Chidambaram had recently asked the chief executives of public sector banks to protect the interests of borrowers in the Rs 8-10 lakh category to the extent possible.