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Bank Lending for Second Homes may become stringent

Bank loans have grown at annual rates of around 30 percent this year, led by the retail demand for homes and automobiles. Huge increase in realty prices has attracted buyers to purchase more than one property.

The Finance Minister, while delivering the keynote address at BanCon 2006, expressed concern over the exponential growth of credit witnessed in some sectors such as housing, credit cards and real estate and asked bankers to guard against building up "bubbles" in the segments. He also asked bankers to reduce their lending to such sectors and re-balance their portfolio.

Now banks will be required to safeguard against speculative buying of real estate and will have to closely look into repayment abilities of borrowers. They may start charging higher rates for second property to discourage such investments. Already, Reserve Bank of India has increased repo rates making money a bit expensive for banks.

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