So what if the interest rates are rising and the economy is suffering from liquidity; banks have not stepped back from lending to real estate companies. In fact the public sector banks have left behind the private banks in this aspect. The growth in advances to the real estate sector by public sector banks in comparison to the private banks was considerably higher during 2007-08 as compared to 2006-07.
Growth in advances by 27 public sector banks during 2007-08 rose by 25.4 % against the previous year. The lending figure increased to Rs 2.72 lakh crore from Rs 2.17 lakh crore earlier. Where as, the advances to the real estate firms by 18 private banks raised by 11.3 % to Rs 1.29 lakh crore in 2007-08 from Rs 1.16 lakh crore in 2006-07.
Over the past five years, the compound annual growth rate (CAGR) of advances to the realty firms from PSBs and private banks has been 129.8% and 136.7 % respectively.
"The real estate sector has been growing rapidly in the last few years. The surging disposable income and burgeoning nuclear families are driving the demand for residential real estate. On the commercial space, higher participation by retail giants in setting up malls has resulted in rapid growth in this sector. So, banks have been aggressively lending to these segments," said a bank analyst.
Amongst the public sector banks, State Bank of Patiala registered the highest rise in advances to the real estate. An increase of 80 percent was noted when the lending figure rose to Rs 4,695 crore from Rs 2,608 crore.
Punjab and Sind Bank and Bank of Maharashtra also confirmed a rise in their lending figure. The lending to real estate spurted 67.3% from Rs 2,042 crore to Rs 3,416 crore for Punjab and Sind Bank where as it rose Rs 6,924 crore from Rs 4,560 crore in case of Bank of Maharashtra.
The largest PSB, State Bank of India(SBI) marked a growth of 42.1% during 2007-08.
In case of private banks, the highest advances to real estate were registered by ICICI Bank followed by Axis Bank and HDFC Bank. ICICI logged total advances of Rs 81,300 crore in 2007-08 whereas Axis Bank and HDFC bank reached a figure of Rs 15,202 crore and Rs 10,157 crore respectively.
City Union Bank, Kotak Mahindra Bank and Lakshmi Vilas Bank showed more than 75% rise in advances to realty firms in one-year period. ING Vysya Bank advances also raised by significantly by 37.4%. Karnataka Bank showed a lowest rise of only 0.2%.
Of the18 banks that increased their lending to the real estate, 72% exceeded the average increase in advances to the sector during 2007-08.