Fewer people are applying for non-premium loans or loans less than Rs 30 lakh due to higher home loan rates, the State Bank of India (SBI) said in a study, which examines the impact of repo hikes on the Indian banking system and home loan market.
The study finds that despite rate increases, the commercial banks’ credit growth has been strong in some segments. For instance, there have been more borrowers for housing loans of over Rs 50 lakh.
The research also shows that bank deposits have risen by Rs 13.96 lakh crore due to the increase in fixed-deposit (FD) rates, fuelled by repo rate hikes. The scheduled commercial banks (SCBs) have increased their home loan rates to keep up RBI’s consecutive repo rate hikes over the past year.
How Repo Rate Hike Affected Home Loan Borrowers
Banks commonly use the repo rate as an external benchmark to link their floating-rate home loans. Therefore, the increase in repo rate has increased home loan rates. Consequently, banks have either increased the loan tenures or the home loan equated monthly installments (EMIs).
The research shows that of the 55 lakh home loan accounts linked to External Benchmark based Lending Rate (EBLR), 47 lakh have suffered the higher rate burden.
Only Affordable Housing Affected
Home loans up to Rs 30 lakh disbursed by all SCBs have declined on average in FY23. But the share of loans over Rs 50 lakh has increased, pointing to an increasing asymmetry.
As real estate companies point out, India's affordable housing market is in a critical condition. These houses have become unaffordable for some buyers, mostly blue-collar workers, who were affected by the economic turmoil caused by Covid-19. The study shows that they are delaying home purchase and moving to rental units due to high cost. Premium and luxury buyers were less affected by the pandemic.
In addition, the government under the Pradhan Mantri Awas Yojana (PMAY) scheme for urban areas has sanctioned more than 122 lakh homes in the affordable segment, and it could be one of the reasons for the fall in demand, real estate consultant ANAROCK said.
According to the SBI study, home loans for affordable housing have significantly declined among in tier 3 and tier 4 areas (rural areas). Female home loan borrowers are gradually increasing and are more concentrated in tier 2 and tier 4 rural areas, it added.