Priority sector lending propels housing finance

A decade ago, bankers in Dakshina Kannada district would not have imagined that housing finance would reach the present high. A look at the housing finance situation, especially under the priority sector lending, shows that banks in the district disbursed more than Rs 1,200 crore in a span of eight years.

The boom in the real-estate sector at the beginning of the decade and competitive marketing strategies by the banks to market housing loans have played a significant role in this growth.

Dakshina Kannada district, with an area of 4,866 sq.km, comprises the five taluks of Mangalore, Bantwal, Belthangady, Puttur and Sullia.

If everything had gone according to the district credit plan from 2000-2008, the banks in the district would have distributed around Rs 1,826.44 crore of housing loan under priority sector. However, the district managed to achieve nearly 70 per cent of the target set over these years under the priority sector disbursement. Housing loan to the tune of Rs 1,268.32 crore was disbursed to 42,641 accounts during the period from 2000-01 to 2007-08.

The beginning of the new millennium saw the banks in the district disbursing Rs 10.49 crore to 862 accounts during 2000-01, though the district credit plan for that year had set a target of Rs 43.11 crore of disbursement. However, the boom in the real-estate sector in the subsequent years seems to have triggered the growth in housing loan under priority sector.

Banks exceed targets


Banks in the district exceeded the target of district credit plan for the years from 2002-03 to 2004-05 in housing finance under the priority sector lending. The disbursement was 77 per cent above the target in 2002-03, and it went up by 21 per cent and 31 per cent of the target set under the district credit plan for 2003-04 and 2004-05, respectively.

A major chunk of the housing loan disbursement under priority sector started flowing from 2004-05. In fact, nearly one-fourth of the total disbursements in those eight years took place during 2004-05 alone. Of the Rs 1,268.32 crore disbursed since 2000-01, as much as Rs 330.17 crore was disbursed in 2004-05. The competitive strategies adopted by various banks to market housing loans during that year are cited as a reason for this growth.

One of the bank officials said that there was almost ‘interest rate war’ among the banks to offer lowest EMIs (equated monthly instalments). This spurred the growth of housing loan during that year.

Mr Arun Fernandes, a marketing executive in a private company in Mangalore who hails from Bantwal taluk, told Business Line that he opted for housing loan during 2004-05. Almost every bank went the whole hog to organise housing loan ‘melas’ during that year, apart from aggressively pushing their housing loan products at the branch-level, he said.

However, the banks did not sustain the same disbursement figures after that. The disbursement figures stood at Rs 227.54 crore and Rs 238.71 crore in the subsequent years. And they reached a low of Rs 165.42 crore in 2007-08.

Slowdown effect


The lending scene was not so rosy for the bankers during 2008-09, as the provisional figures available up to the end of the third quarter put the housing finance disbursement under the priority sector at Rs 75.16 crore.

Bank officials feel that this could be mainly because of the economic slowdown and its impact on the housing sector. Making rough estimates for 2008-09, they said that the disbursements might have crossed Rs 100 crore. Apart from economic slowdown, higher PLR (prime lending rate) slowed the disbursements during the year, they said.

In spite of the slowdown, the real-estate price did not come down drastically in the district. This has made customers adopt a ‘wait and watch’ policy to plan their dream home. This has been reflected in the lower loan disbursement figures in 2008-09, they say.