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Demonetisation effect: Lenders will rejoice as home loan size will increase

Abhijit Lele / Mumbai 10 Nov 16 | 01:50 PM

The easing of property prices following the demonetisation of Rs 500 and Rs 1,000 notes will prove beneficial for lenders and housing finance companies (HFCs) as the average size of home loan is likely to increase. This is because the share of cash component in property deals will drastically come down, while the value will rise proportionally.

HFCs and banks expect a drop in demand for housing loans in the short-term. However, as the situation becomes clearer, property prices would come down pushing up demand, they say.

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With industrial sector demand for credit remaining weak for more than three years, banks have trained their attention in growing a retail loan book especially housing credit.

This being a secure asset class with low delinquencies, bank lending for buying houses has grown a steady rate of 18 per cent (year-on-year) for the past two years.

The outstanding housing finance portfolio of banks grew to Rs 8,05,800 crore in September 2016 from Rs 6,82,900 crore a year ago, according to Reserve Bank of India data.

CRISIL in its sector analysis said loan against property (LAP) as asset class would witness pressure. Delinquencies in this segment were already on the rise, and the likely fall in resale prices of property and elongation of time to liquidate a property, would add to the woes of financiers in this segment.

Edelweiss Securities in a report said in the short-term, there would be pressure on asset quality for both banks and non-banking financial companies.

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