Banks have begun to adopt a more cautious approach to loan against property (LAP), which had been one of the fastest-growing segments under the retail segment in the last few quarters. This comes at a time when competition has increased significantly, as not only the banks but even non-banking financial companies (NBFCs) are getting increasingly active in the space.
“Even though this is a secured lending space, banks are getting a little cautious in lending to this segment. This is because too much expansion that we have seen in the past few quarters in a particular segment can lead to pressure points going ahead and therefore we are being more diligent,” said S K V Srinivasan, executive director, IDBI Bank.
In fact, earlier CRISIL had also warned about the risks emerging in this segment due to the rapid growth adding that loan against property had the potential to grow to Rs 5 lakh crore by 2019, almost double its size a year ago. Nomura, too, had earlier stated there could be potential risk to banks in their loan against property segment if property prices corrected.
Private Banks, especially, had been very active in this segment as they have been leading the growth in the retail segment. However, most of them have now calibrated the growth saying the rate of incremental growth is tapering off.
“Within loan against property we have become cautious in lending to specific segments such as non-resident Indians (NRIs) as sometimes the cash flows and other parameters are not very clear and so even if the segment still continues to grow it is not as rapid as we saw in the last financial year,” said Jose K Mathews, general manager-Retail Banking, Federal Bank.
At a time when banks had been going slow on lending to the small and medium enterprises (SME) segment because of the overall slowdown in the corporate segment, loan against property had emerged as a safe alternative for financing, both for SMEs and the lenders.
However, some analyst believe that in chasing this growth banks have also been lending to the risky commercial segment and have also increased the loan-to-value (LTV) ratio which can prove to be a problem in the times to come.
However, since lenders do not give a break-up of the bad loans in the retail segment, it is difficult to assess the quantum of bad loans. But analysts point out that even though it remains comfortable for lenders now, there could be pressure in the future if the high LTV and risky lending is not brought down.