In light of persistently high interest rates and stable real estate prices, there has been a noticeable decline in housing loan demand. Reportedly, the growth rate for housing loans dropped from 25.8%, amounting to Rs 46,019 crore, at the end of February 16, 2007, to 12%, translating to Rs 26,930 crore by February 15, 2008, as indicated by the Reserve Bank of India (RBI). As of February 15, 2008, the total outstanding housing loans reached Rs 251,688 crore.
The RBI's recent report on Monetary and Macroeconomic Developments highlights the slowdown in credit growth. Specifically, bank credit expansion to the commercial sector witnessed a moderation during the fiscal year 2007-08, remaining within the Reserve Bank’s policy projections established in April 2007. Non-food credit extended by scheduled commercial banks (SCBs) grew by 22.3% (Rs 4,19,425 crore) year-on-year as of March 28, 2008, a decline from the previous year’s growth of 28.5% (Rs 4,18,282 crore).
The personal loan market also experienced a downturn in growth. Personal loans increased by 30.6% to Rs 104,225 crore until February 16, 2007; however, this growth slipped to Rs 58,669 crore, showing only a 13.2% increase. In a similar vein, loans directed to the real estate sector plummeted to 26.7% (Rs 11,361 crore), a stark contrast to the impressive 79% (Rs 18,770 crore) recorded in the prior year. The report stated, 'The slowdown in credit growth, when compared with the rapid increase in deposit growth, has resulted in a decline in the year-on-year incremental credit-deposit ratio of SCBs, dropping to 71.9% at the end of March 2008 from 84.3% a year prior.'
Conversely, the corporate sector continues to tap into an array of alternative funding sources, including capital markets, external commercial borrowings (ECBs), and internal funds generation. Notably, resources acquired through domestic equity issuances during 2007-08 amounted to Rs 48,153 crore, reflecting a 68% increase compared to the previous year. Additionally, net mobilization from external commercial borrowings during the period of April to December 2007-08 surged by 54% relative to the same timeframe the year before.
Moreover, the fundraising through commercial paper (CP) issuances during 2007-08 was nearly triple that of the previous year's issuances, reinforcing the capacity of internal funding generation to meet the financial needs of the corporate sector, despite a deceleration in profits after tax (PAT) for selected non-financial non-government firms during April-December 2007-08 in comparison to the same prior-year period.