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Rising rates hit home loans growth

Submitted by on Sunday, 28 September 2008No Comment

Rising interest rates have hit banks’ consumer finance business, particularly the housing loan segment. The dip in growth is led by a slowdown in housing loan portfolios of banks. Interest rates on home loans have increased to over 10 per cent, affecting demand. The rising real estate prices have also had an impact on the loan growth.

Credit flow to the real estate sector has also seen some drop. Despite the dip in credit growth to the sector, the Reserve Bank of India (RBI) views the 33 per cent growth to be high.

In the personal loan segment, consumer durables loans saw negative growth. The major financier of consumer durables such as GE Money exited the business with margins coming under pressure.

The consumer durables finance business has become unattractive and competitive for finance companies as large retailers are now running their own financial schemes through their own subsidiaries.

The rising defaults in the small-ticket personal loans have forced players such as ICICI Bank to exit the business. Citifinancial and HDFC Bank are also going slow in this business.

RBI is convinced that non-performing assets (NPAs) for some banks in the consumer credit, housing and real estate segments have risen, but this has no systemic implication either in terms of solvency or liquidity.

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