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Mumbai , Dec. 12

"BANKS should not cut corners in dispensing housing loans," according to a senior official of the Reserve Bank of India.

The market was growing very fast and banks need to take measures to keep delinquency under check, said the official.

"The housing loan market in the country is growing which we are happy with, but banks are growing their portfolio very fast. If they grow too fast, they will take on NPAs and will have to bear the burden. We will warn banks if we feel the business is going out of control," Mr Vepa Kamesam, Deputy Governor, RBI, said on the sidelines of the 25th Bank Economists' Conference 2003 held here on Friday.

"Power of attorney documents should not be accepted as title deeds while sanctioning housing loans," he said, urging banks to take note of the same. He added that at present delinquency was not a concern but there was the possibility of emergence of the much debated, asset bubble in housing.

The apex bank had earlier cautioned commercial banks on the aggressive growth of their housing portfolios. The falling rates in the housing market with the ongoing rate wars has prompted many public sector and even some private sector banks to slowdown. "Housing loans are being given on the `agreement to sell' document and are being wrongly labelled as mortgage loans whereas actually they amount to clean loans. These loans cannot even be securitised," said Mr B.D. Narang, CMD, Oriental Bank of Commerce, a speaker at the panel discussion `Retail Banking: Challenges ahead in distribution channels in urban/rural India.'

According to Mr Narang, banks have been less than correct in pricing of home loans. Banks embarked on the business anticipating a rate of default of 0.5 per cent while it is now seen to be substantially higher at 1.5 per cent. He suggested that monitoring would be the key for survival in the home loans turf and that the clerical staff who constitute a substantial part of the workforce in State-run banks should be empowered to monitor accounts.

The amount of fraud in home loans if unchecked would be a trauma for banks, Mr Narang said. At present, IBA is working on empowering the clerical/award staff in State-run banks.

Banks should also sponsor research in retail businesses in order to understand the markets going forward. "The factors determining profitability as far as retail businesses are concerned will pertain to lowering of operating costs and delinquency rates, since gross margins will be standardised across the industry due to rising competition," said Ms Chanda Kochar, Executive Director, ICICI Bank, another speaker at the panel discussion.

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