RBI ask banks to guard against dilution in credit appraisal.
Popular ‘Teaser’ loan schemes, launched especially to attract home loan borrowers, resulting in robust home loan growth in the last one year, has started to pinch banks as bad asset creation from such loans is also rising in equal ferocity. The central bank has now raised a red flag on rising home loan non-performing assets and has asked banks not to dilute credit appraisal standards.
Home loans by banks have registered a robust growth as the domestic economy comes out of the global financial crisis, and as a result, for the year till September 30, growth in home loan was a staggering 30 per cent as compared to 20 per cent for 2009-10 and 4 per cent during 2008-09. According to the Reserve Bank of India (RBI) ‘alluring’ home loan schemes by banks adding to demand pressures and housing prices. In order to discourage ‘teaser’ home loan schemes, Reserve Bank of India (RBI) increased provisioning requirements by 5 times to 2 per cent for such advances.
In its second report on Financial Stability report released today, RBI said home loans growth is very high, despite the sector is seeing high level of non-performing assets.
The NPAs in the housing segment grew sharply during 2009-10 by 27.22 per cent and continued to register significant increase as at end September 2010 on a year on year basis by 26.31 per cent, RBI said.
“As the economy recovers and regains the higher growth trajectory achieved before the crisis, banks will need to guard against any dilution in their credit appraisal standards,” cautioned the banking regulator.
More From This Section
In the last 18 months, housing loans were main driver of bank’s retail credit growth. According RBI data home and personal loans constitute 56 per cent of the banks’ retail portfolio, as on September, while home loans constitute 10 per cent of bank’s advances portfolio.
“Credit acceleration was evidenced across segments. However, it was particularly marked in case of infrastructure advances and retail credit. Increase in advances in both these segments has to be viewed with caution,” the central bank said in its second edition of Financial Stability report, published today. Bank credit growth was 23.7 per cent for the year to December 17, much higher than central bank’s projection of 20 per cent for 2010-11.
Though the share of retail loan to total loans have come down from the pre-crisis levels, which is 19 per cent now as compared to 26 per cent earlier, but RBI said, “incremental rise in impairment in housing loans was discernible.”
“Asset quality continues to pose some concerns as the growth in NPAs outstripped growth in advances leading to a deterioration of gross NPA ratios. These ratios deteriorated despite increased write offs and one time settlements,” RBI said.
Apart from home loan, NPAs from personal loans was the other area which has now started to hurt banks.
RBI data shows personal loans have made a comeback in the last 6-12 months which has increased by 14.49 per cent on year till September as compared to negative growth of 3.48 per cent during 2009-10.
Though NPAs in personal loan has declined on year-on-year basis as at end-September 2010 but accounted for 40 per cent of retail loan NPAs.
The share of unsecured credit which is mainly personal loans remained high at about 35 per cent, RBI said.