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Definitional Change Leads to Sharp Decline in Real Estate Loans
The Reserve Bank of India (RBI) on Monday revealed that credit to real estate decelerated sharply during the period mainly on account of the definitional change to the concept of “lending to real estate sector” effected in September 2009. In its ‘Macroeconomic and Monetary Developments in 2009-10’ released on Monday, the RBI said real estate loans showed a rise of just 0.9 per cent (or Rs 842 crore) as on February 26, 2010 as against a rise of 58.8 per cent (Rs 33,617 crore) in the same period of last year.
In September 2009, the Reserve Bank had said bank finance to developers of infrastructure facilities in SEZs would be taken as infrastructure lending, against its 2006 ruling that classified these as commercial real estate (CRE) exposures. In its mid-year review last year, the RBI had hiked the risk weight on commercial real estate loans to 1 per cent from 0.4 per cent. The RBI then cited a more than 40 per cent increase in loans to commercial real estate and also added a note of caution on the fact that nearly 14 per cent of commercial realty assets were restructured by banks.
Indicating the revival in the housing loan segment, total home loans had risen by 8.3 per cent (or Rs 22,880 crore) during the period ended February 26, 2010 as against a rise of 6.4 per cent (Rs 16,431 crore) in the same period of last year. Home loan offtake was falling in the last several quarters. Real estate prices had witnessed an upturn in the last three-four months across the country in line with the rise in asset prices all over the world.
In another interesting development, credit card outstandings had fallen sharply by 28.3 per cent (or negative Rs 8,189 crore) during the period ended ended February 2010 as against a rise of Rs 2,122 crore (7.9 per cent increase) in the same period of last year. Many banks and card companies have been going slow on new card additions and started focussing on recoveries.
According to the RBI, the agricultural sector absorbed 18.3 per cent of the incremental non-food bank credit in February 2010 (12.7 per cent last year). Share of personal loans in incremental non-food credit increased markedly to 6.5 per cent by February 2010, from (-) 0.2 per cent in October 2009. Within personal loans, while education loan and housing loan continued to grow over 30 per cent and 8 per cent, respectively, the contraction in credit to some sub-sectors such as consumer durables and advances against shares, bonds, etc, moderated. The share of personal loans in incremental non-food credit increased markedly to 6.5 per cent by February 2010, from (-) 0.2 per cent in October 2009. Due to the revival in credit demand for the banking system as a whole, the credit extended by private banks at end-March 2010 showed some improvement over last year. The loan portfolio of foreign banks, however, contracted.
The RBI said disaggregated data on sectoral deployment of gross bank credit show improvement in credit growth (y-o-y) to all major sectors such as agriculture, industry, services and personal loans from November 2009 onwards. Industry absorbed 52.6 per cent of incremental non-food credit (y-o-y) in February 2010 as compared with 55.8 per cent in the corresponding month of the previous year, said the report. Real estate loans fall sharply due to ‘definition’ change
This expansion was led by infrastructure and basic metals and metal products. The share of incremental non-food credit to services sector was 22.6 per cent in February 2010. Within services sector, credit growth (y-o-y) for transport operators, computer software, tourism, hotels and restaurants and trade accelerated in February 2010. Also, the share of incremental nonfood credit to micro and small enterprises (industry as well as services) increased to 16.4 per cent in February 2010 as compared with 12.4 per cent in February 2009.
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