Finance minister Arun Jaitley is expected to push state-run banks to boost their housing loan portfolio and consider further rate cuts at a meeting on Friday. A senior finance ministry official said banks have been asked to submit their housing loan data and suggest ways to increase the housing loan portfolio as a pickup in demand for homes will help spur the economy.
"Banks may also be asked to lower rates especially towards housing loans. We will see if they can come out with some special schemes," the official said, requesting anonymity.
Jaitley will review the annual performance of state-run banks on Friday. The Reserve Bank of India has reduced the key rates by 75 basis points in the last six months and some banks have brought down home loan rates to single digits after many years.
"If there is a pickup in housing loan, the whole infrastructure sector stands to benefit and that will in turn spur the economy," said the finance ministry official quoted earlier.
The finance ministry will also take up banks' credit related issues, including that of private sector banks.
The sector recorded its lowest annual credit growth in almost two decades in the last fiscal at 12.6%, the lowest since 1996-97 when credit offtake increased by mere 9.6%.
As per finance ministry's data, sector banks stood at Rs 4.14 lakh crore at the end of December 2014, a growth of 12.18% compared to March 31, 2014.
"The bad loans in the housing sector remain at the lowest. That is an extra incentive for banks to lower the rates," the ministry official said. Banks have passed on part of the last two rate Bank to borrowers. The country's biggest bank State Bank of India, for example, has lowered its base rate to 9.7% and is offering home loans at 9.75%.
SBI had an outstanding housing loan portfolio of Rs 1.52 lakh crore as on December 2014 with NPAs at 0.83%. The non-performing assets (NPAs) for housing loan portfolio for all public sector banks stood at 1.44% as on December 2014, much better than over 5% for the entire portfolio. The gross NPAs for all PSBs at the end of December 2014 cuts announced by the Reserve housing loans extended by public stood at 5.64% of their loan portfolio at Rs 2.62 lakh crore.
Last month, Jaitley had said that NPAs in March had come down to 5.2% but the drop is only an initial indicator. "If this pattern continues over 2-3-4 quarters, then I will draw a conclusion that there is a pattern. I am keeping my fingers crossed," he had said.
Chairman of a state-run bank said that instead of pushing banks to lend more to home buyers, the government should focus on the economy. "Most banks are already focusing on retail loans because of high bad loans. The government should rather look at strengthening the economy so that credit off-take increases," the person said on condition of anonymity.
The government also wants banks to pass on the 25 basis points rate cut that the Reserve Bank of India had announced in its June review. The central bank's governor Raghuram Rajan had then said he expects banks to pass on the policy rate cut to individual and corporate borrowers. "Banks should pass sequence of lending rate cuts," he had said.