While Jaitley wants 30% growth in 'priority housing loans', it has shrunk to lowest-ever at 4.7%, down from 9.40% in September last year
High-cost housing market in India is on the edge of a bubble and could burst any time, thanks to banking sector's predilection for high credit. Banks are pumping too much credit in high-cost housing, where sales are stable or down, creating an artificial price hike. A key document of the finance ministry, accessed by dna, shows public sector banks have failed to finance 'priority' or affordable housing loans. The document will be produced at a review meeting of the finance minister and bankers on Monday.
Overall credit growth of banking sector is 8.4 %, which is the lowest in last 20 years. While housing sector attracts more than 21 % fresh loans after large industry segment, there is no space for affordable housing finance.
Finance ministry wants to see 30% growth in 'priority housing loans', as Arun Jaitley sought bankers to strive for in June 12 meeting. But it shrunk to lowest-ever level at 4.7 % in September this year, down from 9.40 % in the corresponding period last year. This is despite government banks recording 19 % growth in overall housing sector loans.
Deepak Shenoy, Capital Mind, says, "If the government is looking to provide sops for low-cost housing they should actively discourage high-cost housing because it is taking the bulk of all housing related credit today. We are creating bubbles there."
In 2015, if we include all credit, 20 % of new credit has gone to housing sector; this means in every five new loans, one is to housing sector of which most are high-cost housing. In other words, home loan EMI portion is more than 40% of take-home salary. This will lead to default cases in this segment. Finance ministry document indicates growing non-performing assets or NPA in housing sector.
Real estate consultant Sanajay Sharma, MD Qubrex says, "even as the average home prices have not increased over the last one year, the average ticket size of loans has increased, giving rise to the possibility that banks are offering loans at inflated and higher valuations. The higher NPAs add to the possibility of loans at inflated values".
Housing loan has two broader categories – priority or affordable housing loans (below Rs 25 lakh) and high-cost housing (above Rs 25 lakh). High-cost housing loans are growing at more than 21% on yearly basis while priority sector loan growth is down to 5% a year.
Credit pattern has decided the fate of economy as well as specific sector. Currently, bank credit growth is at dramatically low level at below 9% against 20% in 2008. It means banks are almost not lending to any sector except high-cost housing, which indicates big trouble to banks as well as to economy.
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