PSBs trump pvt banks in lending to realty cos

Written by Pradip Kumar Dey | Mumbai, Sep 22 | Updated: Sep 23 2008, 06:26am hrs
Banks, especially those in the public sector, are seen to have been on a lending spree to real estate companies in FY08.This despite the current liquidity crisis which is now casting its shadow on the realty sector.

According to an FE study, growth in advances to the real estate sector by public sector banks (PSBs) vis--vis private banks was significantly higher during 2007-08 as compared to 2006-07.

Growth in advances during 2007-08 by 27 PSBs, as compared to the previous year, surged by 25.4%, to Rs 2.72 lakh crore from Rs 2.17 lakh crore.

During last five years, the CAGR of PSB advances was 129.8%. In the case of 18 private banks, advances to realty firms went up by 11.3% to Rs 1.29 lakh crore in 2007-08 from Rs 1.16 lakh crore in 2006-07. The five-year CAGR of private banks advances to the real estate sector stood at 136.7%.

An analyst from a bank said, The real estate sector has been growing rapidly in the last few years. The surging disposable income and burgeoning nuclear families are driving the demand for residential real estate. On the commercial space, higher participation by retail giants in setting up malls has resulted in rapid growth in this sector. So, banks have been aggressively lending to these segments.

Among PSBs, the highest rise in advances was registered in the case of State Bank of Patiala, which increased by 80% from Rs 2,608 crore to Rs 4,695 crore.

In the case of Punjab and Sind Bank, lending to real estate spurted 67.3% from Rs 2,042 crore to Rs 3,416 crore.

Bank of Maharashtras figure was Rs 4,560 crore during 2006-07. This rose to Rs 6,924 crore during 2007-08. State Bank of India, the largest PSB, also logged a growth of 42.1% during 2007-08.

Among private banks, City Union Bank, Kotak Mahindra Bank and Lakshmi Vilas Bank showed more than 75% rise in advances to real estate companies during 2007-08.

Of these 18 banks, 72% exceeded the average increase in advances to the sector during 2007-08.

Significant increase in advances to real estate was also noticed in the case of HDFC Bank (38.8% ), ING Vysya Bank (37.4%) and Axis Bank (35.6%). The lowest rise was seen in the case of Karnataka Bank (0.2%).

In 2007-08, the highest advances to real estate was registered by ICICI Bank (Rs 81,300 crore) followed by Axis Bank (Rs 15,202 crore) and HDFC Bank (Rs 10,157 crore). Total advances to the real estate sector of ICICI Bank increased by 2% during 2007-08.