Reserve Bank of India Deputy Governor Vepa Kamesan on Friday warned banks on the rapid increase in home loans.
"We are happy that the housing loan portfolio of banks has increased. It is, however, increasing too fast. The delinquency rate in home loans at the moment is not a concern. But it may not remain so if banks take to short cuts. Banks should also know their customers properly," Kamesan said at the Bank Economists' Conference in Mumbai.
Earlier, speaking at a session on retail lending, Oriental Bank of Commerce chairman and managing director B D Narang said non-performing assets in the home loan segment were growing and the current pricing of home loans might not be sustainable.
"The pricing is based on the anticipation that the rate of default will be 0.5 per cent, but it has already turned out to be 1.5 per cent. The incremental non-performing assets in home loans are around 2 per cent," Narang pointed out.
He also challenged the myth that home loans were the most secured assets in a bank's books as they were fully collateralised.
"What the banks keep are the sale deeds, and the properties are not mortgaged to them. Sale deeds cannot be treated as conveyance deeds," Narang said making it clear that home loans were unsecured loans.
"Such loans are also not capable of being securitised," he added. Asking bankers to take a close look at their home loan portfolios, he said the current pricing was "less than correct."
Kamesan said, "The power of attorney is not a title deed. Banks should not cut corners. If corners are cut, the non-performing assets of banks may rise." He, however, made it clear that the RBI would not prescribe any standardised document for home loans.
"Currently, we do not see any need to talk to banks. But if need be, we will take up the issue," the deputy governor said.
Over the past two years, the banking sector has only increased its retail assets, and 80 per cent of these are home loans.
The warnings
- Short cuts will increase delinquency rate.
- Banks should not cut corners.
- Current pricing is less than correct.
- Sale deeds cannot be treated as a conveyance deed.
- The power of attorney is not a title deed.
