RBI Governor Raghuram Rajan has expressed that the flow of bank credit into the real estate sector is not a big worry, despite concerns regarding the build-up of asset bubbles in realty sector in the last couple of years.
Rajan, looked confident to that fact that the RBI has put a heavy discount on the loan to value. And he is being very realistic that there is always a cushion of cash component in such purchases as a buyer’s equity in the house. He said in reference to the post policy conference.
Loan growth to real estate sector “relatively a very small portion” of bank balance sheets and that there is “a sufficient equity cushion” as of now.
He emphasized upon keeping a watch over as how the prices eveolve and at what point does it start raising a concern. But he did not seem overly concerned barring a few locations.
Rajan had, in an earlier interview in the Central Banking Journal in August had cited the possibility of yet another financial crash following the steep rise in asset prices.
The Housing Finance Market
Housing finance market in India has seen expansion in late 1990s and early 2000s with scheduled commercial banks (SCBs) playing a big role. SCBs and HFCs housing loan portfolio has grown considerably over the years, with the housing loan portfolio of financial institutions (SCBs and HFCs) increasing from Rs 4.60 lakh crore in 2010 to Rs 8.90 lakh crore in 2014 — a CAGR (compounded annual growth) of about 18 per cent.