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The Reserve Bank's latest Financial Stability Report (FSR) reveals a noteworthy shift in the composition of total advances. The share of residential housing loans has seen a significant increase over the past eleven years, climbing from 8.6 percent in March 2012 to 14.2 percent in March 2023. The housing sector is experiencing a healthy rise, with sales surging by 21.6 percent in the fourth quarter of 2022–23 and new launches maintaining a robust pace, indicating strong demand from end-users.
According to the FSR, residential housing loans have consistently gained prominence compared to total loans, while commercial real estate (CRE) loans have remained relatively stable between 2.0 and 2.9 percent. The report notes that the banking system's exposure to real estate stood at 16.5 percent of total loans in March 2023. Due to the secured nature of these loans and adherence to loan-to-value (LTV) ratio regulations, loan defaults have remained below 2 percent.
RBI data indicates that housing loans outstanding reached Rs 19,36,428 crore in March 2023, marking a 15 percent year-on-year increase. The FSR also reveals that the all-India house price index (HPI) recorded its highest increase in seventeen quarters (4.6 percent year-on-year) during the fourth quarter of 2022–23. On a sequential basis, the HPI has been rising consistently over the past year, with a further 0.6 percent increase in January–March.
House sales grew by 21.6 percent in the same quarter, and new launches maintained healthy growth, reflecting strong demand from end-users and investors. However, the rise in unsold inventory has led to an increase in the inventory overhang during January–March 2022–23, as per the FSR. With robust demand for houses in the post-pandemic period, the narrowing house price gap (actual price minus trend) indicates a potential concentration of credit and vulnerability in the housing market.
In March 2023, loans with interest rates over 9 percent accounted for 56.1 percent of the total, in line with the monetary tightening measures since May 2022. The RBI initiated interest rate hikes to address global supply disruptions following the Russia-Ukraine war, raising the benchmark short-term lending rate by 250 basis points. However, the RBI refrained from further rate increases in its last two monetary policy reviews.
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