Banks Inclining More Towards Personal Loans

June 21, 2007	(Be the first to rate this story!)  Loading ...
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Banks are fast shifting their focus from secured loans to unsecured loans in the wake of stringent liquidity conditions. Credit cards and other personal loans fall under the category of unsecured loans whereas the home improvement loans are secured loan as they are provided against the borrower’s valuable possession.

Since January, a sharp fall has been observed in number of customers for home loans. But bankers feel confident about potential of unsecured personal loans. The slump in home loan customer acquisition is attributed to banks no longer pushing home loans forcefully.

Soaring interest rates on home loans and prohibitive property prices are believed to be the major factors putting off investors from parking their funds in Indian real estate. There should be enough liquidity available to banks at an economical price. At present, the liquidity in Indian banking system has been tightened. For that reason, banks are being more inclined towards lending unsecured loans which allow them to earn higher margins.

There are fewer margins in mortgage loans. Also, interest rates have firmed up by 200-250 basis points in the past 3-4 months. This has naturally resulted in a drop in demand for housing loans and affected loan disbursements to a great extent.

The Reserve bank of India (RBI) raised the cash reserve ratio for three times in between the December 2006 to March 2007. The move forced the banks to invest more cash with the central bank. Again, the burden has to be ultimately borne by the consumers as the banks increased prime lending rates by 50-75 basis points.

Despite all the ups and downs, home loan market in India is expected to grow about 20% in 2007. Contrary to this, the unsecured loans are likely to grow at over 30%. Experts suggest banks to have a discerning eye while going through the financial profile of customers before lending them the home loan.  A rise in EMI (equated monthly installments) has worsened the things for home loan borrowers. This is why; there are concerns over the repaying capacity of the borrowers.

News Published Under:   Home Loans |

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