Concerned over a possible shakeout in the home loan market, Reserve Bank of India (RBI) has asked several leading banks to furnish data on the number of borrowers who have bought second or third home, how many them belong to the salaried class and the default levels in home loans.

On Tuesday, the RBI met leading banks on a short notice and asked them to provide the loan details. Officials who attended the meeting said bankers told RBI that the home loan market has slowed down following the rise in interest rates and property prices. RBI has also asked bank to provide details on loans disbursed at different interest rates.

“Banks have to provide information such as Rs x crore loan disbursed as 7% and Rs y crore at 7.25% and so on. The information sought relates to floating as well as fixed rate loans,” said a banker. The fear is that once the property bubble bursts, borrowers who have invested in second or third homes to earn a fat rent could default, as tenants relocate to properties where the rent is lower. At that point the properties that have been pledged with the banks may not be adequate to cover loan exposure.

Besides, banks are required to provide loan break-up for the salaried borrowers, self employed, loans to builders and property developers. They were also asked to provide information on the various frauds that have surfaced in the home loan segment and measures that banks are taking to protect themselves against such delinquencies.

“RBI also made inquires on the role of home loans as a component of asset price bubble,” said a banker. In other words, RBI is keen to find out to what extend home loans have contributed to the perceived asset price bubble, said a banker. Over the last two years at several occasions RBI has cautioned banks on financing home loan customers. In 2004, when more and more banks were offering home loans at cheaper rates, the central bank raised the risk weightage on home loans from 50 basis points to 75 bps and subsequently in July 2006 to 100 bps.

Further, in order to discourage banks from funding property developers following a steep rise in the property price, RBI raised the risk weightage on loans to commercial real estate in various stages from 100 bps in July 2005 to 200 bps in the January 2007. At present, home loans account for nearly 15-20% of loan books public sector banks while for ICICI Bank, which has the largest share of home loan in the banking sector, it is about 30%. Loan disbursement in the banking sector rose 44% in March ‘06 over the previous fiscal year, from Rs 1,28,728 crore to Rs 1,86,429 crore.

-Economic Times
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