Bank lending to the commercial real estate sector has witnessed a substantial 38% increase in July compared to the previous year, as reported by the latest sectoral credit data from the Reserve Bank of India. Experts attribute this surge to the rising demand for real estate projects in the wake of the pandemic.
As of July 28, outstanding loans in the commercial real estate segment reached Rs 4.07 lakh crore, a significant rise from Rs 2.94 lakh crore on July 29 the previous year. In comparison, loan growth during the period from July 30, 2021, to July 29, 2022, was a modest 3.6%.
The housing sector also experienced a substantial increase in outstanding bank loans, with a 37% jump to Rs 24.3 lakh crore at the end of July, compared to Rs 17.7 lakh crore a year earlier.
Bank executives and experts attribute this surge in lending to the heightened demand for commercial properties in tier 1 and tier 2 cities following the pandemic.
Sanjay Agarwal, Managing Director of AU Small Finance Bank, stated, “We have seen growth across projects, and around 7% of our total book, approximately Rs 4,700 crore, is in the housing and real estate segment.” Pankaj Kapoor, founder of Liases Foras Real Estate Rating and Research, noted that lenders are gradually shedding the cautious approach they adopted after the 2018 IL&FS crisis, which caused a liquidity crisis.
Kapoor added, “Lenders like banks are becoming aggressive in lending to the commercial real estate sector. They see massive scope for growth.”
In addition to lending to the commercial segment, several banks have actively engaged in deals and projects. For instance, in February, IndusInd Bank invested Rs 140 crore in Sushma Group’s commercial projects in Chandigarh, while the Sushma Group secured Rs 50 crore from the State Bank of India in August 2022. In January, Bank of Baroda took part-possession of Nirmal Lifestyle Mall in Mumbai.
HDFC Bank, the largest private sector bank in the country, boasts the largest housing loan portfolio, with assets of approximately Rs 7 lakh crore. SBI follows closely with a portfolio of Rs 6.5 lakh crore. SBI’s housing loan portfolio experienced a robust 14% growth in the April-June quarter. ICICI Bank recorded a year-on-year growth of 16%, with its total portfolio reaching Rs 3.55 lakh crore. Punjab National Bank’s housing portfolio also saw a notable 12% increase to Rs 83,893 crore in the April-June quarter.
According to a report by Knight Frank and the National Real Estate Development Council in August, India’s real estate sector is expected to expand to $5.8 trillion by 2047, contributing 15.5% to the GDP, up from the existing share of 7.3%.
In light of these developments, Manoj Joshi, Secretary in the Ministry of Housing and Urban Affairs, suggested that real estate developers in India should rely more on financing from the banking system rather than depending heavily on homeowners’ investments. This recommendation was made in May as a means to sustain and boost the sector’s growth.