C. Shivkumar

Bangalore, Nov. 16

TAKING a cue from the RBI's repeated cautions, public and private sector banks have started containing exposures to housing loan assets.

This has been resorted to for restricting the build-up of non-performing assets in their balance sheets. Housing finance has shown the highest growth rate in the non-food credit portfolio and is now almost 50-60 per cent of the overall retail assets.

However, bankers said that the containment steps would not lead to reduction of housing finance portfolios. Instead, the growth rates would not be allowed to take place on the same scale as before. This implies that within the overall credit portfolio, the share of housing loans would be restricted to less than 50 per cent instead of the current levels. Banks' aggregate exposure to housing and real estate sector is estimated to be close to Rs 30,000 crore. The paring of the share of housing loans is also considered in view of competing credit demand from other sectors, especially agriculture and the small and medium enterprise sector.

One of the major worries of the RBI, the bankers said, is that the housing finance portfolios would be adversely impacted by a meltdown in the real estate sector, leading to a build-up of large non-performing assets.

This is especially at a time when banks have just managed to clean up the balance sheets and bring down the overall net non-performing assets ratio to an average of 1.5 per cent of the advances through hefty loan provisioning. Banks have managed to bring down the average gross non-performing loan ratios to 4 per cent by writing off liquidation and recoveries. Fears are that in the event of a meltdown, banks with large exposures to real estate would be making large provisions, adversely impacting their respective balance sheets.

Bankers added that the cue had come from the RBI through an increase in risk weighting for housing loans late last year. This ratio was raised to 75 per cent from 50 per cent, conveying the signal for repricing of housing loans. However, banks went ahead by pushing the housing loan portfolio in view of the liquidity overhang and low credit off-take. Some of the banks had actually reduced the lending rates on housing loans.

Yet, the bankers said that some of the covenants have been tightened despite the low rates. Additional security is now being demanded from borrowers, over and above the mortgages. This is to ensure that housing loans are not obtained for real estate speculation.

Besides, the bankers said that they were also making additional floating provisions to minimise risks.

(This article was published in the Business Line print edition dated November 17, 2005)
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