New Delhi: Concrete evidence is emerging that the rate of growth of home loans is slowing down in public sector banks.

These banks which saw loan disbursements grow by over 40 per cent in the two years before fiscal 2006-07 saw a growth rate of 21 per cent in 2006-07. The portfolio grew from Rs1,11,639 crore to Rs1,35,052 crore, according to information available from sources in the finance ministry.

This is in stark contrast to a more than 100-per cent rise over a two-year period between 2004 and 2006 that saw the home loan portfolio move up from Rs53,737 crore to Rs1,11,639 crore.

Official sources said seven banks had registered over 30 per cent increase in their home loan portfolio during the 2006-07 fiscal. Bank of Baroda saw a 38-per cent rise in its portfolio last year compared to the previous year.

A few smaller banks such as Dena Bank (59 per cent) and United Bank of India (46 per cent) recorded much higher growth rates than the rest.

Banking industry sources have for some time been cautioning that a combination of rising interest rates, high cost of real estate (which however has shown some signs of coming down from the year-high perch) and higher margins in bank loans would slow down growth in home loan portfolios.

The government has on its part been keen that the impact of high interest rates should somehow be softened on the small and medium borrowers.

Finance minister, P Chidambaram had recently asked the chief executives of public sector banks to protect the interests of borrowers in the Rs8-10 lakh category to the extent possible.

Second home loans may cost more
At the same time, banks are considering higher charges for those seeking loans for a second home or those costing above the Rs15-Rs20-lakh limit.

The largest private sector lender, ICICI Bank, is considering charging more for loans for second homes. The bank is already discouraging second homebuyers with credit norms being tighter for this category.

At present ICICI Bank charges 12 per cent for home loans of Rs15 lakh and above. Union Finance Minister P Chidambaram had also called upon banks to curb retail loans. The realty sector had witnessed a steep rise in valuations, which some analysts described as unsustainable.

However, following a series of rate hikes combined with a 1.50 per cent increase in CRR limits in three phases effected by the RBI since November last, credit flows to sensitive sectors are beginning to witness a slowdown.

While first-time and home loan borrowers for self use are unlikely to be affected by differential rates in case banks decide to implement such a move, those going in for second homes will definitely find their costs rising.

However, the efficacy of this move in preventing speculation in the realty sector will depend upon the banks'' ability to ascertain whether a loan sought is for the first time for self use or for a second home. Banks will now have to conduct this exercise diligently in line with the RBI''s policy to check retail loans.