Public sector banks including State Bank of India and Punjab National Bank, have been witnessing a surge in the number of home loans defaulters.

The rate of defaults has increased by a 4 percent, in past six months for the banks in Chandigarh region. The banks have also been witnessing rise in the default cases in other regions - quoting, a SBI official, loan department, "In Haryana region, in Ambala, default has soared to 7% and in J&K, the figure is 15%. Though we have stopped giving personal loans to the non-salaried, we are working on making scrutiny of home loan applicants more stringent."

The largest public sector lender, SBI is currently offering home loans at a rate of 8.5 percent per annum for an amount up to Rs. 5 lakh.

Its peer bank, PNB has reported an increase of 10 percent, in defaulters in the past six months. Quoting PNB retail banking offcial, "There has been a rise of 10% in delinquency. However, we are also witnessing an upward trend in home loan borrowers with 8.5% interest up to Rs 5 lakh on fixed loan."

The private peers with more stringent lending and recovery procedures have witnessed a fall in the default rates. Private lender, HDFC saw an increase in its lendings and a fall in the gross non-performing assets - "Gross non-performing loans which are an index to the default rate, on March 31 this year, amounted to Rs 701.55 crore. This is equivalent to 0.81% of the loan portfolio, the figure at the corresponding period last year being 0.84%," said HDFC official, corporate communications.

The official also added, "The year saw a rise in home loans approvals. They amounted to Rs 49,166 crore this year as compared to Rs 42,520 crore in the previous year, representing a growth of 16%. This was to build up the buying capacity in the market."

The wide gap between the interest rates of PSB and their private peers has been gravitating the home loan customers to move to the PSBs (Jun 9, 2009), where the rate of interest is comparatively lower.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, provides a legal framework for the securitisation of assets. The act also covers transfer of NPAs to the asset reconstruction companies.

The act defines a non performing asset (NPA) for the term loans; as an advance where the interest and /or installment payable on the principal remains overdue for a period of more than 90 days, with effect from March 31, 2004.