Data from rating agency Icra shows similar trends. Between the end of March and the end of December 2009, the home loan portfolio of banks and housing finance companies grew 8.7 per cent to Rs 4,13,700 crore (see table). According to RBI data, between the end of March and December, bank credit grew 8.8 per cent. State Bank of India was the first to launch the scheme in February. SBI's home loan portfolio grew 24.43 per cent to Rs 67,268 crore at the end of December compared with Rs 54,063 crore in March.

Union Bank of India, which closed its offer yesterday, disbursed around Rs 3,000 crore under the scheme, said a bank executive. In a report, Icra said disbursements had picked up in the second quarter of 200910, but higher prepayments led to lower portfolio build-up (only 5 per cent over June 2009 and 14 per cent year-on-year). "The trend could well see 2009-10 reporting moderate credit growth," it said. Bankers said many customers who had opted for the scheme were existing borrowers who wanted to reduce their interest burden.

Apart from the risk of rising interest rates, bankers said housing demand had increased only in the last few months as potential buyers had earlier deferred purchases in anticipation of a further reduction in prices. They said in the initial months of revival, the demand was for budget housing, where the ticket size was smaller. With salaries being restored and consumer confidence rising, people were now more willing to take loans with tenures of 1520-years, they said. A decline in interest rates to 8-9 per cent, as against 12 per cent a year ago, resulted in a 15-25 per cent reduction in installments, according to Icra. A Union Bank of India executive said lower interest rates were applicable only for 24-36 months, and in case there was a delay in possession, the borrower might lose the benefit.

"From the bank's point of view, continuing the scheme for long is not sustainable. For borrowers who have not assessed the credit risk in the long term, repayment may become difficult if there is a steep rise in interest rates," said Icra analyst Vibha Batra. A Unitech executive said the payment model was changing as real estate players were linking payment to construction. "So, a customer pays the EMI (equated monthly installment) later. Thus, even as sales have picked up, buyers do not have to go to banks for loans right now," said a Unitech spokesperson.

"It is more a question of affording a house and expectation management, rather than interest rates. Interest rates are only a small component," said Punjab National Bank Chairman and Managing director KR Kamath. "Low interest rates do not really help directly in selling a (dwelling) unit. Not many people are opting for the 8 per cent interest home loan scheme from public sector banks as there are operational and service-related issues. In private sector banks, disbursals are much easier," said a Unitech spokesperson.

"The idea behind the 8 per cent home loan scheme was to provide stimulus to the economy in the backdrop of the financial crisis and support homebuilding as it leads to growth in ahost of other sectors such as steel and cement. The apprehensions of higher interest rates will be there, whatever be the interest rates. It is more a question of expectation," said P Nandakumar, SBI's chief general manager in-charge of personal banking.

With RBI sounding a warning on these schemes and the 75 basis points increase in the cash reserve ratio, banks are closing the scheme