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C.Shivkumar

Home loan disbursals slowing down on tighter RBI norms

Bangalore , June 5

Life insurers' sales of mortgage-backed term plans are expected to face rough weather in view of the slowdown in housing loan offtake.

These plans are linked to housing loans, allowing lenders to secure their liabilities in the event of accidental death/injury of borrowers. The mortgage reducing assurance (MRTA) covers are pure risk plans assigned to the lenders and introduced initially by life insurers to ride the housing loan boom. The life of the policy is linked to the loan tenure and the sum assured is linked to the quantum of the loan. As loans are amortised, the sum assured also progressively drops.

In fact, bankers said that for all loan sanctions above Rs 10 lakh, insurance is made mandatory for the borrowers.

But fresh loans are being virtually scanned with a toothcomb. Bankers said they have begun tightening up on home loan sanctions. This has come after the Reserve Bank of India raised the risk weightage on home loans to 150 per cent and provisions to one per cent. This has made fresh home loan sanctions more difficult and more expensive for the borrowers.

However, for life insurers, mortgage-backed plans are not "bread and butter products''.

Private players cool

Core income, insurance industry officials said,was driven by savings and unit-linked products in the case of private sector life insurance companies. Almost 65 per cent of private sector premiums are for unit-linked covers and barely 15 per cent for MRTA products.

The Bajaj Allianz Life Insurance Company Managing Director, Mr Sam Ghosh, said, "MRTA is only a small component of the portfolio offered through two of our bancassurance partners. Credit offtake slowdown has so far not affected us."

However, this applies only in the case of past loans. In most such cases, insurance premiums are treated as part of the home loan product itself as single premium covers or premium is factored into the Equated Monthly Instalment.

High rejection rates

Where banks have high disbursals of home loans, they would also have high sales of MRTA plans, where borrowers are covered. Consequently, the sources said, if offtake of home loans is impacted, it would also reflect on the insurance products also. Which means current and future sales of mortgage plans would suffer.

In fact, there has been a sharp drop in the offtake of home loans from most of the banks after the RBI's missive in April. Though break-up figures are not yet available, bankers said the rejection rates of home loan applications have risen during the last few weeks.

Hints of the drop in home loan disbursals were evident from the negative growth in non-food credit for the latest reporting week. Non-food credit has dropped by Rs 756 crore and growth has dropped to just 3.4 per cent on a year-on-year basis, a trend since the beginning of this fiscal year, according to the Weekly Statistical Supplement.

More Stories on : Housing Finance | General Insurance

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