The Hindu Business Line : Bankers on edge as home loan defaults creep up

CONCERN is rising among a section of lenders on the home loan front with defaults showing a steady increase. Bankers say that the negative fallout of continued intense competition among banks and housing finance companies for an increased share in the booming home loan market is starting to show with repayments' record of borrowers coming under increased stress.

Top officials of banks dealing with housing finance put the blame on "reckless lending policies" by some lenders because of which defaults are beginning to occur at a greater regularity. The wrong practices mentioned include over-financing of the asset or a high proportion of loan compared to the asset value.

"Defaults are definitely on the rise. Some of us have not been adopting sound lending policies and have been quite reckless. Often the margin (upfront payment) taken from the borrowers have not been enough to cover the price fluctuation of the property. Because of competition there have been instances where loan has been given for up to 95 per cent of the value of the dwelling unit," the Managing Director of a large housing finance company said.

He pointed out that the defaults are showing more in places where the property prices are on a downswing. "We are seeing that repayment interest goes down in places where property prices have been going down," he said. However, he said that in most cases defaults show up at an early stage of the borrower's repayment period.

Bankers also argue that some of the defaults are the result of uncertain corporate life with job losses taking place on account of companies going in for restructuring or downsizing. "We have come across instances where there have been disruption in payment of equated monthly instalments (EMIs) by people who have suddenly lost cushy jobs. Once such disruption occurs over a couple of months there is a tendency of the borrower joining the list of permanent defaulters," another top banker said.

However, one senior banker disagreed that the defaults were on account of high loan to asset value extended by the lenders. He felt that default on home loans was more when there has been a definite intent in defrauding the system.

"There are instances where salaries are inflated to get higher loan or imperfect security is given or a wrong valuation of the property is given to extract a higher amount of loan. Though we try our best to guard against all these, there is no fool-proof system to tackle those seeking a loan only to misuse the system," the banker said.

More Stories on : Non-Performing Assets | Housing Finance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
At 6K, Dalal Street at crossroads

FIIs take fancy for old private banks — Goldman Sachs Investment leads the pack

Foreign holding in Aptech goes up to 51 pc

Bankers on edge as home loan defaults creep up

Marathon: Mumbai Inc shows it cares & shares