Home
loan growth rate slows down in public sector banks
New Delhi: Concrete evidence is emerging that the
rate of growth of home loans is slowing down in public
sector banks.
These
banks which saw loan disbursements grow by over 40 per
cent in the two years before fiscal 2006-07 saw a growth
rate of 21 per cent in 2006-07. The portfolio grew from
Rs1,11,639 crore to Rs1,35,052 crore, according to information
available from sources in the Finance Ministry. This is
in stark contrast to 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 Rs53,737 crore to Rs1,11,639
crore.
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 saw 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) 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 Rs8-10 lakh category
to the extent possible.
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Banks
seek RBI approval for trading in illiquid bonds
Mumbai: Banks have sought approval from the Reserve
Bank of India (RBI) to make arrangements for purchasing
illiquid government securities, so that they become more
marketable instruments.
Illiquid
securities are typically bonds with a higher premium,
not traded on a regular basis. Across the same tenor,
there is likely to be a difference of up to ten basis
points between the actively-traded security and the illiquid
ones.
On
an average, nearly 5-10 per cent of a bank's total bond
portfolio may comprise illiquid papers. Out of nearly
100 such securities issued so far, less than 10 of them
are actually traded in the market.
Banks
having a larger proportion of such securities in their
bond portfolio find it difficult to offload these bonds
in the market due to lack of buyer interest. Hence, they
cannot use these holdings as a buffer to raise funds,
in order to meet credit requirements.
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Loans
for second home may cost more
Mumbai: Banks are considering higher charges for those
seeking loans for a second home or above the Rs15-20-lakh
limit.
India's largest private sector lender, ICICI Bank, is
considering charging more for loans for second homes.
The
bank is already discouraging second home buyers with credit
norms being tighter for this category. At present ICICI
Bank is charging 12 per cent for home loans of Rs15 lakh
and above. Union Finance Minister P Chidambaram had also
called upon banks to curb retail loans. The realty sector
had witnessed a steep rise in valuations which some analysts
described as unsustainable. However, following a series
of rate hikes combined with a 1.50 per cent increase in
CRR limits in three phases effected by the RBI since November
last, credit flows to sensitive sectors are beginning
to witness a slowdown.
While
first-time and home loan borrowers for self use are unlikely
to be affected by differential rates in case banks decide
to implement such a move, those going in for second homes
will definitely find their costs rising.
However,
the efficacy of this move in preventing speculation in
the realty sector will depend upon the banks' ability
to ascertain whether a loan sought is for the first time
for self use or for a second home. Banks will now have
to conduct this exercise diligently in line with the RBI's
policy to check retail loans.
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