By laksh5382 
The huge increase in policy rates by the Reserve Bank of India (RBI) by 250 basis points from May 2022 seems to be impacting the loans taken by retail borrowers. While growth has slowed in most retail loan categories, the slowdown in housing loans is significant as it accounts for almost half of retail loans.
Recent data from reserve Bank of India Shows year-on-year growth on gross bank credit by major sectors housing loan It was 13.1 percent in August 2024, a sharp decline from 40.5 percent in August 2023. In August 2022, housing loans stood at ₹17.8 lakh crore, which increased to ₹25 lakh crore by August 2023. However, by August 2024, the amount increased to only ₹28.3 lakh crore, showing sluggish growth.
reasons behind recession
The slowdown in housing loans appears to be mainly due to rising interest rates as the RBI’s policy rate hikes are applied to bank loan rates. In 2021, State Bank of India offered home loans at rates between 6.8 percent and 7.2 percent, which has now increased to 8.5 percent to 9.7 percent in 2024. Similarly, home loan rates of Bank of Baroda have increased by 6.5 percent. percent in 2021 to 8.4 percent in 2024. ICICI Bank rates increased from 6.8 percent in 2021 to 8.8 percent in 2024, and Kotak Mahindra Bank rates increased from 6.5 percent in 2021 to 8.8 percent in 2024.
Vivek Iyer, partner, Grant Thornton India, said, “Housing EMIs consume a significant portion of a person’s budget and interest rates also play a big role in it. Increased interest rates have played a big role in reducing this demand (for housing loans). “We expect housing demand to increase in the last quarter of FY2025 as we expect an interest rate cut in the February 2025 MPC.”
Rahul Mehrotra, MD and CEO, Religare Housing Development Finance Corporation Ltd, said rising interest rates, economic uncertainty, regulatory changes and rising rental demand are among the major factors contributing to the decline in housing loans in India.
Subha Sri Narayanan, Director, CRISIL Ratings, said that the growth rate of housing loans should be analyzed by banks keeping in mind the HDFC Ltd-HDFC Bank merger. After adjusting for the merger, the growth rate from August 2022 to August 2023 was around 13.5 percent. However, from August 2023 to August 2024, the growth rate increased to more than 18 percent. “This will include the impact of incremental housing loans booked on the bank’s balance sheet after the merger,” Narayanan said.
house prices rise
Increase in house prices may also reduce demand. Data from National Housing Bank Housing Price Index (HPI)which tracks the rise in property prices, showing a steady rise across India. The four-quarter moving average for India’s HPI rose from 128 in June 2023 to 131 in December 2023, reaching 136 in June 2024. Among cities, Hyderabad experienced the fastest growth, with its HPI rising from 176 in June 2023 to 191 in June 2024. Other cities also recorded an increase in housing prices in June 2024.