Economic Survey 2018: Rising NPAs of housing loans disbursed by public banks and HFCs a cause of concern

The individual housing loan disbursements of Public Sector Banks (PSBs) and Housing Finance Companies (HFCs) have shown an increase of nearly 11 percent in 2016-17 over 2015-16 but increasing non-performing assets (NPAs) of individual housing loan portfolios of PSBs and HFCs is a cause for concern, says the Economic Survey.

As per NHB RESIDEX, housing price index has shown increasing annual trend in 36 cities during April-June 2017 out of 50 major cities, with Vizag recording the highest increase of 15.7 percent, Delhi recording 8.1 percent, and Noida recording the lowest increase of 0.9 percent. Among the 13 cities witnessing a fall in the index, the highest decline was recorded in Bhiwadi (-10.6 per cent), followed by Coimbatore (-6.6 per cent), and Chandigarh (-5.9 per cent).

Rising NPAs, higher risk provisioning assigned to real estate sector and dwindling profits in the real estate sector, have made banks reluctant to lend to the sector. As a result, the share of bank lending for organised funding to real estate sector has dropped significantly from over 68 percent in 2013, to 17 percent in 2016, says the Economic Survey.

Interestingly, Private Equity (PE) funds and financial institutions such as pension funds and sovereign wealth funds have replaced banks as the largest source of this sector. The share of PE funds and these institutions in real estate funding has gone up significantly from 14 percent in 2013 to over 82 percent in 2016. On a cumulative basis for the 2013-16 period, PE funds have been the highest source of funding accounting for 57 percent share, followed by bank lending with 34 percent share, while the remaining 9 percent is funded through FDI inflows, it says.