The share of residential housing loans in total advances has increased over the last eleven years to 14.2 percent in March 2023 from 8.6 percent in March 2012, as per the Reserve Bank’s latest Financial Stability Report (FSR). It also said the housing sector is witnessing a healthy growth with sales growing by 21.6 percent in the fourth quarter (January-March) of 2022-23. In addition to rising sales, new launches also maintained healthy growth, reflecting strength in demand by end-users.

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The share of residential housing loans in total loans has increased over the last eleven years to 14.2 percent in March 2023 from 8.6 percent in March 2012, the report said. During this period, the share of commercial real estate (CRE) in total loans has hovered between 2.0-2.9 percent.

"Total exposure of the banking system to real estate stood at 16.5 percent of total loans in March 2023. Given the secured nature of these loans and loan to value (LTV) ratio regulations, loan defaults remain less than 2 percent," it said.

Pradeep Aggarwal, Founder and Chairman, Signature Global (India), said historically, Indians have shown a preference for avoiding loans, and if they do take one, their inclination is to repay it as quickly as possible.

"This approach is particularly evident when it comes to home loans, as buyers seek to clear their debts promptly. Home ownership is viewed as a source of pride and accomplishment, and individuals are motivated to avoid loan defaults and the potential loss of their homes. As a result, the non-performing asset (NPA) rate in the home loan segment remains low," he said. Additionally, the regulations and guidelines set by the Reserve Bank of India (RBI) pertaining to home loans play a crucial role in maintaining this low NPA rate," Aggarwal added.

Executive chairman of Andromeda Sales V Swaminathan said the residential housing segment has experienced notable growth in demand, thanks to factors such as the implementation of RERA (Real Estate Regulation and Development Act), and the impact of the pandemic. Consequently, the share of home loans in the overall retail loan portfolio has increased. "Home loans are secured loans, often involving the borrower’s equity as down payment. Due to the potential risk of losing their equity in case of default, borrowers generally prioritize early repayment of their home loans. As a result, the non-performing asset (NPA) rate in the home loan segment remains low," he added.

According to an RBI data, housing (including priority sector housing) loan outstanding in March 2023 was Rs 19,36,428 crore, up 15 percent year-on-year. The FSR further said the all-India house price index (HPI) recorded its highest increase over the last seventeen quarters (4.6 percent y-o-y) in the fourth quarter of 2022-23. On a sequential (q-o-q) basis, HPI has been rising over the last one year and inched up further by 0.6 percent during January-March.

It also said that during the fourth quarter of 2022-23, house sales grew by 21.6 per cent and new launches also maintained healthy growth, reflecting strength in demand by end-users as well as investors. The rise in unsold inventory resulted in an uptick in the inventory overhang in January-March of 2022-23, it said.

It noted that with strong demand for houses in the post-pandemic period, the house price gap (actual less trend) is closing after a period of around three years. A positive house price gap is an early warning of concentration of credit and vulnerability in the housing market. As per the RBI’s ’Basic Statistical Return on Credit by Scheduled Commercial Banks in India – March 2023’, the share of loans bearing over 9 per cent interest rate rose to 56.1 percent in March 2023, in tandem with the monetary tightening measures starting May 2022.

The Reserve Bank started raising interest in May 2022 to rein in inflation in the wake of global supply disruptions, following the Russia-Ukraine war. Since then the benchmark short-term lending rate has increased by 250 basis points. However, the RBI did not raise the rate in its last two bi-monthly monetary policy reviews.