The Hindu Business Line : IOB chief shrugs off fears over home loan NPAs

THE Chairman and Managing Director of Indian Overseas Bank, Mr S.C. Gupta, has dismissed fears that commercial banks may already be faced with non-performing assets in their ballooning home loan portfolio.

"Who says there are NPAs in housing loans? Statistics up to December 31, 2003, show that home loan portfolio has grown to Rs 1,900 crore in the last three years. Out of this, overdues amount to just Rs 18 crore. Remember, they are only `overdues', and not NPAs proper. These statistics are tolerable. After all, we're working in a dynamic situation and aberrations such as these do take place," Mr Gupta told Business Line here.

Dwelling on Reserve Bank strictures in this regard, he said regulatory concerns were triggered in the wake of interest rate wars fought fiercely by banks. The housing loan sanctions are yet to reach a full cycle, according to Mr Gupta. Only when the cycle is complete would anyone know how the sector has been performing. The cycle should normally take 10 to 12 years to complete, given that the average tenure of the loan ranges from five to 20 years.

However, Mr Gupta sounded a note of caution saying any untoward decline in real estate prices could trigger defaults. Strict adherence to loan to value and income to loan ratios should prevent such situations from coming about.

On strengthening of the rupee, he said that the inflow of dollars, lacklustre demand and an unhelpful forwards regime would make it difficult for the Reserve Bank to carry on with the sterilising operations for indefinitely long. "With all the funds inflow, particularly from FIIs, you can't create artificial demand to absorb the dollars. Even if the bankers are directed to pick dollars - no such directions have been issued so far, they will have to pay a price somewhere down the line," said Mr Gupta.

Whether the system can afford to pay the price when the inflow is more than the demand, is a moot question. Exporters will have to continue to adjust their pricing options. No wonder some of them are talking in terms of invoicing in terms of rupee and the euro.

"As for IOB, we are watching the situation as it develops," Mr Gupta added.

More Stories on : Housing Finance | Non-Performing Assets | Public Sector Banks

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