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Why is the RBI raising a red flag on lower ticket size home loans?

Why is the RBI raising a red flag on lower ticket size home loans?

Why is the RBI raising a red flag on lower ticket size home loans?
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By Jyotindra Dubey  Jun 7, 2018 6:29:47 AM IST (Updated)

The Reserve Bank of India (RBI) on Wednesday raised the key rates by 25 basis points. While this remains the major highlight of the the Monetary Policy Review as this being the first policy rate hike after four and a half years, there were several other observations and concerns which the Monetary Policy Committee (MPC) highlighted in their ‘Statement on Developmental and Regulatory Policies’.

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The MPC raised a red flag on low-ticket home loans up to two lakh rupees, and these loans may attract more scrutiny, as the committee is seeking to tighten norms by increasing the loan value ratio and the risk weight in these category of loans.
The concern:
The MPC stated that, after a careful analysis of the housing loans data, it has been observed that the level of non performing assets (NPAs) for the ticket size of up to Rs. 2 lakh has been high and is rising briskly.
Banks need to strengthen their screening and follow up in respect of lending to this segment, the MPC noted.
The reason:
Affordable housing is currently driving home loan growth in India. While the overall disbursement of home loans by public sector banks (PSBs) along with housing finance companies (HFCs) saw a deceleration in 2016-17, the growth in home loans of low ticket size were on the rise.
According to RBI data, the housing loans up to Rs. 10 lakh recorded robust growth of 24% in 2016-17. While the disbursements and number of beneficiaries in the affordable housing segment increased, the NPAs in lower ticket size home loans also saw substantial increase.
The sharpest rise in NPA ratio was seen in housing loans up to Rs. 2 lakhs ticket size.
NPAs for housing loans of up to Rs. 2 lakhs stood at a whopping 11.9% for PSBs during 2016-17. For HFCs, NPAs went up from 6.1% to 8.6% for the same segment. Over all housing loan NPAs saw only marginal increase from 0.9 % to 1.1% during the same period.
“The uptick in slippages was expected given increasing delinquencies in the loan against property segment, sharper focus on low-ticket-size home loans, and increased lending to the self-employed customer segment,” said Rama Patel, Director, CRISIL Ratings in a recent report on affordable housing.
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