Housing 15% of incremental non-food credit: ASSOCHAM

New Delhi, Mar 8 (UNI) Notwithstanding the Reserve Bank's warning relating to the quality of credit to the real estate and housing sectors, the segments grew by a phenomenal 15 per cent of the non-food credit, which itself is registering a robust increase, a new study shows.

An Associated Chambers of Commerce and Industry (ASSOCHAM) Eco Pulse study brings out that the commercial banks exposure to the housing sector has gone up by a whopping 11 times, even though some bankers fear that if the quality of credit deteriorates it may lead to a bubble burst.

The housing sector in the United States, which is also experiencing a very rapid growth, faces a similar predicament.

Warning signals have been given by both the US Fed as well as experts in the banking sector.

But unlike the US, the growth of the Indian housing sector is being propelled by a tax shield and the benign interest regime.

The study, however, brings out that the Non-Performing Assets (NPAs) in this area are as low as 2 per cent compared to the industry average of 8 per cent of total lending.

''As indicated by the RBI itself, the NPAs in the retail segment remain quite low at 2 per cent. Appreciating the Central Banks' advice to put an adequate risk monitoring and management system in place, we in industry feel that the appetite for credit in the housing and retail segment should not be allowed to die,'' ASSOCHAM President Anil K Agarwal said.

The study says that the major factors attributed to this phenomenal performance in the housing loan segment were the soft interest rate regime prevailing in the economy, growing income levels of the consumers -- thereby higher purchasing power, buoyancy across all the sectors of the economy and increase in investments.

The year-on-year growth in the credit to the sector increased by 6.91 per cent in 2000-01, 31.97 per cent in 2001-02, 55.96 per cent in 2002-03, -5.68 per cent in 2003-04, and 47.45 per cent in 2004-05.

In the past years, the interest rates have been witnessing a decline, which in turn has led to a massive increase in the amount of credit dispersed to the housing and the real estate sector.

Many commercial banks here have reportedly hiked home loan rates owing to the prevailing liquidity problems. Banks like HDFC, IDBI, ICICI and SBI raised the home loan rates by 25 to 75 basis points in order to re-align the rising cost of deposits. As a result of the hike, the floating rates are expected to increase up to 9.25 per cent from 8.75 per cent. At the same time, the banks have increased PLR by 25 basis points to 50 basis points.

As per the study, despite anticipation of a decline in the housing and the real estate loans, the credit allocation went up by 39 per cent between March-October 2005.

The Indian economy is expected to grow at around 8.1 per cent this year. Hence, demand for consumer loans primarily housing and real estate loans is expected to remain strong, the study said.

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