India’s home loans healthy for lenders in spite of rising interest rates

Indian rupee

Home loans remain healthy for India’s banks and nonbanking financial companies (NBFCs) as the country’s housing market remains in an upcycle, according to S&P Global Market Intelligence.

Bank loans to residential real estate increased by 16% year over year to 18.058 trillion rupees as of Sept. 30, Reserve Bank of India data showed. NBFCs, where mortgages are spread across a range of lenders from dedicated housing finance companies to consumer finance firms, saw loans rise 18.8% to 3.03 trillion rupees.

Krishnan Sitaraman, senior director and deputy chief ratings officer at CRISIL, told S&P Global Market Intelligence that he expects asset quality to remain broadly steady in the home loan segment. “Historically, asset quality on home loans for banks and NBFCs has not weakened too much” he was quoted as saying. The gross nonperforming loan ratio in the banks’ home loan portfolios stood at 1.7% as of March 2022, and has generally stayed below 2.0%, he added.

Home sales grew 60% in H1 year over year to 158,705 units, according to data from Knight Frank Research. The Asian country’s housing boom contrasts with several other markets, such as the U.S., China and Australia, where mortgage demand has been more sensitive to interest rates.

“[The] home loan market in India is very mature and every player is very prudent while lending. As long as lending institutes are not doing anything irrational, it is a market that has immense scope to grow,” Renu Sud Karnad, managing director at Housing Development Finance Corp. Ltd., or HDFC, the biggest housing NBFC in the country by assets told S&P Global Market Intelligence.