The Hindu Business Line : ‘Home loan delinquencies may rise on reckless lending’

Mumbai, Sept. 10 Some banks in India may see delinquencies in the home lending going up, due to reckless lending, said Mr Deepak Parekh, Chairman, HDFC.

While banks in India have not been as irrational as in the US, it is important for them to maintain discipline and be prudent in their lending, he said.

Addressing the real estate seminar organised by FICCI (Federation of Indian Chambers of Commerce and Industry), Mr Parekh said that in India there have been instances of banks giving loans at 110 per cent of the value of the property, which includes stamp duty. This will lead to some bad loans in the home loan segment.

“In India, too, the overkill that happened on retail lending is now having its repercussions in terms of increased non-performing assets. Ultimately, there is no substitute for prudent lending, irrespective of whether the market is going through a boom or bust phase,” he said.

Expected NPA surge

A report by rating agency Crisil, which was released in July, had also said that the home loan segment may see a rise in gross NPAs. The report said that gross NPAs in home loans are expected to increase to 2.7 per cent in 2008-09 from 2.2 per cent in March 2007.

HDFC quality

About HDFC’s asset quality, Mr Parekh said the NPAs are under control, as most of the borrowers are small borrowers from smaller cities, and the average size of the loans is about Rs 15 lakh.

This fiscal HDFC is likely to see credit growth of 24-35 per cent. The housing finance company saw 28 per cent credit growth in July and 22 per cent credit growth in August.

Mr Parekh also said that interest rates have peaked and may come down, because inflation has eased. However, he also pointed out that the market believed that one more round of rate hike may happen.

Tougher route

Even though bank financing and the primary market route for real estate companies to raise funds has become tougher, there is sufficient interest from foreign investors, Mr Parekh said.

“In the first quarter of the financial year, about 20 per cent of FDI inflows were in housing and real estate,” he said.

Mr Parekh also said that there is a growing consensus for a real estate regulator, just as there is need for increasing transparency in the real estate market, simplifying acquisition procedures, reducing stamp duties and reframing development control rules to meet present requirements and supporting infrastructure.

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