Low-Cost Housing Loans See More Defaults, Says Report

Even though the Centre has been pushing the cause of affordable housing, cheaper loans are a burden for banks. A recent report by rating agency Crif Highmark reveals that 2.33 per cent of loans up to Rs 25 lakh taken for affordable housing saw borrowers defaulting to repay for over 90 days. For loans under Rs 10 lakh, the three-month overdue loan repayment stood at four per cent.

Affordable housing and loans

Banks, housing finance companies and private equity companies see huge opportunities in the affordable housing sector. Undoubtedly, it is a big opportunity, given that at 7.79 lakh crore, these form about half of overall home loans which stands at Rs 15.8 lakh crore. However, experts across the banking and housing finance industry agree that the capability to execute well, risk management, underwriting and strong capital is the key to success.

The affordable-housing segment falls in the priority-sector lending category, apart from having an infrastructure status, Under Section 80-IA of the Income Tax (I-T) Act, rebates are also offered on tax. Further, concessions on long-term capital gains tax provisions are also provided to the affordable housing segment amid Prime Minister Narendra Modi making all efforts to meet his government's housing-for-all-by-2022 target.

However, since April, home loans outstanding in this segment have increased by 13.6 per cent. The foreign banks have been most impacted with their bad loans in the sub-Rs 10 lakh category, at 16.20 per cent, says the report.

Popularity of housing finance companies

Even though public sector banks are more popular when it comes to affordable housing loans with 59 per cent share of loans, housing finance companies are also coming. The latter has seen a rise in disbursements by 12 per cent while that of the public sector banks grew by 10 per cent.

Deal with bad loans

One way to deal with bad loans is that housing finance companies could rolling out multi-cycle loans with small-term installments. This is often termed as incremental housing loans.

The 90-day loan overdue has been growing as shown below:

Home loans and Indian cities

With inputs from Housing News