Mumbai: Rating agency Crisil on Wednesday provided some solace to bankers, the banking sector regulator and policy makers apprehensive about a rise in home loan defaults. According to Crisil, Indians are least likely to default on a housing loan among all their liabilities.
The level of non-performing assets in the home loan segment is close to 4% which the agency’s analysts feel is not worrisome. Acknowledging the fact that paying rent for a house is far more affordable than the EMIs, the analysts remarked that paying the EMIs helped in fact to generate an asset, which led to higher comfort levels. They said home loan delinquencies would not go up significantly and hence shouldn’t impact ratings.
EMI schedules have been impacted by the rise in interest rates. However, certain factors will reduce the impact, the Crisil analysts say. Firstly, income levels have risen by up to 20% in the past few years. Secondly, the property value would also have risen by the time the loan is repaid. Furthermore, irrespective of how interest rates move, a lot of pre-payment of loans happens in India in most cases, people tend to pay up to 10% of the loan after they receive their annual bonus.
According to Crisil’s head of corporate & government ratings Tarun Bhatia, “The affordability index of India compares favourably with other developing countries. The affordability index is basically a ratio of the property price to one’s net annual income. This figure was at 5.2 for 2006 as compared to 4.5 in 2005. The rise of nuclear families and double income households, coupled with the ease of credit procurement could emerge as positive influences in the mortgage finance industry.”
Banks are becoming more competitive with their home loan portfolios, and the biggest hit has been taken by housing finance companies, according to Crisil. Though big names like HDFC and LIC Housing are relatively unaffected, smaller HFCs like Dewan Housing could feel the hit, the rating agency said. HDFC, on the other hand, is in a strong position as they have the ability to pass on some of the burden to the customers, and also have access to overseas funds. In a couple of years, banks will grab up to 80% of the mortgage financing share, however, in the light of tightening rates, lenders are likely to be more cautious, they feel. The local mortgage finance industry will continue to grow but at a slower pace, despite the recent rise in interest rates, Crisil said.
The industry, which has clocked a growth of 33% during the last three years, will grow at close to 20%, on the back of the strong demand for housing as well as rising incomes in an economy which is the one of the fastest growing in the world, they say. Post the successive rate hikes, there has been a genuine slowdown in demand for housing finance. However, Tuesday’s annual monetary policy review should have a positive impact. The central bank on Tuesday reduced the risk weight on housing loans below Rs 20 lakh from the existing 75% to 50%.