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Hit by inflation, rising rates, small borrowers struggle to service loans

K. Ram Kumar
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Public sector banks record highest defaults in sub-Rs 5 lakh segment

Public sector banks are grappling with the problem of high delinquencies in the up to Rs 5 lakh home loan segment. High interest rates and sticky inflation have undermined the ability of small borrowers to service home loans.

Home loans in two slabs — up to Rs 2 lakh and Rs 2-5 lakh — have registered the maximum delinquency in public sector banks for FY12.

Data compiled by the Finance Ministry show that as at March-end 2012, bad loans spiked to 11.03 per cent of the outstanding home loans in the Rs 2-5 lakh slab, from 4.90 per cent in the year-ago period.

Similarly, bad loans jumped to 10.28 per cent of the outstanding home loans in the up to Rs 2 lakh slab, from 6.07 per cent in the year-ago period.

Feeling the pinch

Home loan borrowers in the economically weaker section (EWS) and low-income group (LIG) categories are apparently being weighed down by the almost 200-basis-point rise in lending rates over the last couple of years. Further, the inflation bugbear is upsetting the common man’s household budget.

There are 26 public sector banks in the country, including five associate banks of State Bank of India. These banks collectively account for about 74 per cent of the country’s gross bank credit. In view of the rising delinquencies in the small home loans segment, public sector banks appear to be playing it safe. In FY12, their collective home loan disbursements in the Rs 2-5 lakh segment was down 42 per cent, to Rs 6,579 crore (Rs 11,334 crore in FY11).

For home loans in the up to Rs 2 lakh slab, disbursements have been 7 per cent lower, at Rs 5,352 crore in FY12 (Rs 5,762 crore).

Bankers, however, say this situation — rising delinquencies, leading to lower disbursals — could change for the better as the Centre has operationalised the Credit Risk Guarantee Fund Trust (CRGFT) for low-income housing in May 2012. The CRGFT covers home loans up to Rs 5 lakh given by banks to the economically weaker section and low-income group segments. For home loans of up to Rs 2 lakh and in the Rs 2-5 lakh slab, the Trust will cover up to 90 per cent and 85 per cent of the loan, respectively, in case of a default.

Higher loan slabs

In the other three loans slabs — Rs 5-10 lakh; Rs 10-25 lakh; and above Rs 25 lakh — the delinquencies have nudged down.

PSBs disbursed more home loans in the Rs 10-25 lakh slab in FY12 — up 29 per cent vis-à-vis FY11 — even as delinquencies were down to 1.74 per cent in the slab, from 2.57 per cent in the year-ago period.

ramkumar.s

@thehindu.co.in

(This article was published in the Business Line print edition dated August 20, 2012)
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