Despite banks having dropped loan rates, the growth in mortgages has dropped to a four-month low of 11.4% year-on-year (y-o-y) in June. Home buyers, according to bankers, are sitting on the fence in anticipation prices will correct further. On June 9, State Bank of India (SBI) had reduced rates on home loans of more than Rs 75 lakh by 10 basis points (bps) to 8.55% for salaried women and 8.6% for others. The move came in response to the Reserve Bank of India’s (RBI) decision to lower the risk weight and standard asset provisioning for home loans.
Earlier, in May, most large home loan players, including SBI, ICICI Bank, HDFC, Indiabulls Housing Finance and Axis Bank had aggressively reduced rates on affordable home loans, bringing them down to 8.35% in some cases for loans of up to Rs 30 lakh. In most cases, these discounted rates were available for a limited period, extending to the end of either June or July.
The expectation that asset prices will fall comes in the wake of states enforcing their respective real estate rules under the Real Estate (Regulation and Development) Act (RERA), 2016. In June 2016, housing loans had grown 18.4% y-o-y, according to data released by RBI. Loan growth has gone from the mid-teens to sub-12% between October and June as home loan purchases were postponed by buyers first on hopes of a demonetisation-induced fall in asset prices and later because of uncertainties surrounding the impact of RERA.
Passed in March 2016, RERA came into force on May 1 this year. Fourteen states — including large real-estate markets Maharashtra and Karnataka — and the seven Union territories have notified their real estate authorities so far. Some bankers said the rollout of the goods and services tax (GST) regime may also have caused borrowers to delay purchases. A senior executive with a large public-sector bank said, “There was some slowdown because of RERA and GST. But in locations like Mumbai, most developers have already registered with the authority and we expect a pick-up with the beginning of the festival season.”
The slowing trend in mortgage growth is despite banks reducing their marginal cost of funds-based lending rates (MCLRs) in January and then the spread over MCLRs for some categories of home loans in May and June.