Until the mid-1980s, grant-ing home loans to public by the commercial banks was a utopian concept and untouchable too! The main reason adduced those days was that as resource base of commercial banks was predominantly customer deposits, which were again generally withdrawable on demand, the deployment of such funds in the form of home loans (the nature of which are generally long-term) would create mismatch in banks' asset-liability management besides concern over higher order credit risks for such loans over a fairly long period of time. Slowly, however, from late 1980s and more importantly from the beginning of 1990s, the ground for the above rationale was getting weakened. This was because of banking sector reforms and, of course, as a part of socio-political objectives of the government to provide shelter to more people in the country.
Thus, the new brave face of Indian banks was heartily welcomed by all and sundry, but in the process, lending norms and control started loosening up resulting in a pile of irregular/irrecoverable home loan portfolio (in close similarity with the current lending chaos in the US by way of subprime mortgage which has resulted in a near-downfall of the financial empire!)
No specific lending parameter for home loans was ever prescribed by the regulatory authorities. The commercial banks were left to develop the package following usual lending norms. For the banks, obviously, cost-benefit implications were more important than larger societal welfare. |
