According to an RBI report, the proportion of housing loans to total advances increased to 14.2 percent in only 11 years

According to the Reserve Bank’s most recent Financial Stability Report (FSR), during the last eleven years, residential housing loans have grown in proportion to overall advances, rising from 8.6% in March 2012 to 14.2% in March 2023.

Additionally, it said that sales in the housing industry increased by 21.6% in the last quarter of 2022–2023 (January–March). In addition to increasing sales, new launches continued to rise strongly, demonstrating a strong end-user demand.

According to the data, residential home loans now account for 14.2% of all loans, up from 8.6% in March 2012 during the previous eleven years.

Commercial real estate (CRE) loans have made up between 2.0 and 2.9% of all loans over this time.

“In March 2023, the banking system’s overall exposure to real estate was 16.5% of all loans. Loan defaults remain below 2% due to the secured nature of these loans and restrictions on loan to value (LTV) ratios, it added.

In the past, Indians have shown a propensity for avoiding loans, and when they do take one, they have a tendency to return it as swiftly as possible, according to Pradeep Aggarwal, founder and chairman of Signature Global (India).

“This strategy is especially visible when it comes to mortgages since purchasers want to pay off their obligations as soon as possible. People are driven to avoid loan defaults and the probable loss of their houses since owning a property is seen as a source of pride and success. As a consequence, the segment’s non-performing asset (NPA) rate for residential loans continues to be low, according to him.

Additionally, the Reserve Bank of India’s (RBI) rules and regulations for house loans are essential in sustaining this low NPA percentage, Aggarwal said.

According to V Swaminathan, executive chairman of Andromeda Sales, the effect of the pandemic and the adoption of the RERA (Real Estate Regulation and Development Act) have both contributed to a noticeable increase in demand for residential homes. Home loans now make up a larger portion of the total retail lending portfolio.

“Home loans are secured loans, often requiring a down payment from the borrower’s equity. Borrowers often give priority to early repayment of their mortgages due to the danger of losing their equity in the event of failure. The non-performing asset (NPA) rate in the house loan market therefore stays low, he said.

Housing loans, including those for priority sector housing, were overdue for Rs 19,36,428 crore in March 2023, up 16% from the same month last year. The FSR said that in the fourth quarter of 2022–2023, the all–India home price index (HPI) had its largest growth in the previous seventeen quarters (4.6% y–o–y).

HPI has been increasing sequentially (q-o-q) throughout the last year and tacked on 0.6% of growth between January and March.

Additionally, it said that during the fourth quarter of 2022–2023, home sales increased by 21.6% and new launches continued to rise strongly, demonstrating a strong demand from both end users and investors.

According to the report, the inventory overhang increased between January and March of 2022–2023 as a consequence of the growth in unsold inventories.

It said that after a period of around three years, the house price difference (actual less trend) is shrinking due to the high demand for homes in the post-pandemic era. An early indicator of loan concentration and market fragility in the housing sector is a positive home price gap.

According to the RBI’s “Basic Statistical Return on Credit by Scheduled Commercial Banks in India – March 2023,” the proportion of loans with interest rates above 9% increased to 56.1% in March 2023 in response to the tightening of monetary policy commencing in May 2022.

In May 2022, the Reserve Bank began boosting interest rates in an effort to control inflation in the aftermath of supply disruptions throughout the world brought on by the Russia-Ukraine conflict. The benchmark short-term lending rate has gone up by 250 basis points since then. In contrast, the RBI did not increase the rate in its most recent two bimonthly reviews of monetary policy.