Home Loans: The Biggest Credit Growth Driver In India

If we have a look the previous five years, home loans in India registered 16% of CAGR (Compounded Annual Growth Rate) which is the highest. The general credit to the industry received a slump by reaching just single digits when there was an unfavourable credit growth in India this year. On the other hand, the loans’ share was still favourable at 37.5%.

RBI released some data on sector credit and as per it, on 31st March, 2017 bank credit was Rs.26.77 lakh crore to the industry. Apparently, this is less (by 2%) than the bank credit (Rs.27.30 lakh crore) which is outstanding as on 31st March 2016. And that is the reason for the slowest bank credit growth in India in a very long time.

The main factor was home loans in India for bank credit in the financial year of 2016-17 which amounted to Rs.8.60 lakh crore. The housing share has been increasing since 2012 in which it was 9.26%. Before this, it was 2009 when the bank credit had witnessed a double digit in housing segment. But, the growth has reduced to 5% in financial year 2017 in bank credit. The reasons behind this downfall are the shifting to the debt market and pressure of bad loans on banks.

The slacking of the loan industry is due to the PSBs which have lowered their vulnerability among the corporates. Just following the segment of home loans in India is the segment of credit cards which is the second fastest with 20% CAGR. Even with this, they just comprise of 1% of the bank credit. Experts say this is due to the fact that as Indians, we have a habit of getting ‘bill-free’ by the month end.

If we look the services sector, the main driving forces for credit growth have been loans for trade, professional services and non-banking finance companies.