Affordable housing is certainly the next big driver of growth for Indian banks and other financial institutions as forecasted by the Reserve Bank of India (RBI). Banks in India are going all out with regard to offering funding for the housing segment, particularly in the affordable housing category. However, overall home loan growth has slowed down in spite of the aggressive thrust on affordable housing by banks. The home loan share in the priority sector has dropped to 41% of total housing loans sanctioned by banks from the high benchmark of 60% three years earlier (as of June, 2017).
This clearly indicates that Indian banks have not been doling out smaller home loans without hesitation. Priority sector loans encompass home loans up to Rs.25 lakh and this is why this new information is telling on the sector at present. Even with the reduction of total lending to this priority sector by Indian banks, proportion disbursed as home loans has also witnessed a slight reduction. The chunk of home loans has gone down with the entire priority sector lending segment also witnessing a major shrinking of sorts. Bank credit for the total priority sector went up by only 4% by June, 2017 which is lower than 9.7% one year earlier and even 15.5% in the fiscal year 2013.
The share taken by home loans in the total priority sector has already come down to 15.2% in comparison to 17.6% around three years earlier. Affordable housing, in retrospect, has a bigger and more well rounded definition as contrasted with home loans falling under the priority sector. The Reserve Bank of India (RBI) has included home loans up to Rs.50 lakh under the aegis of loans in the affordable housing category. However, in spite of the aggressive approach taken by banks for disbursing home loans in this category, growth has certainly slowed down in comparison to the last fiscal year. Home loans have witnessed growth of 11.4% as of June, 2017 which is lower than 28% that was seen one year back. NBFCs, as clearly evident, continue their dominance on the affordable housing space with banks still struggling to carve their niches in this space.