The decision of National Housing Bank (NHB) to permit home loan borrowers to bring in just 10 per cent as upfront payment for availing loan above ₹20 lakh is expected to give a boost to big ticket loans.

The rider put by NHB that such loans should have a mortgage guarantee cover from a registered company is not expected to be a deterrent as the Housing Finance Companies (HFCs) themselves would have tie-ups with mortgage provider for extending the cover.

An amendment posted on NHB Web site on October 15 by Mohammad Mustafa, Chairman and Managing Director of NHB, stated that individual housing loans higher than Rs 20 lakh could be granted by a HFC with higher loan to value (LTV) ratio not exceeding 90 per cent. But such a loan should be guaranteed by a mortgage guarantee company that was registered with the RBI, "subject to the excess over the prescribed limit not exceeding the extent of the mortgage guarantee cover of such loan''.

In an interview to BusinessLine , Deo Shankar Tripathi, President & COO, Dewan Housing Finance Corporation Ltd (DHFL), says the move by NHB would bring about uniformity in lending and would help borrowers of high value loans who may have found it difficult to bring in their own contribution under the earlier rule. Excerpts from the interview

How do you view the decision of NHB to relax the norms for contribution by borrowers for home loans from HFCs irrespective of loan size?

Under earlier rule, the borrowers had to bring in 10 per cent for loans up to ₹20 lakh, 20 per cent for loans over ₹20 lakh to ₹75 lakh and 25 per cent for loans beyond Rs 75 lakh. This has now been rationalised and for all loans, the minimum upfront payment by the beneficiaries is 10 per cent. However, this comes with a stipulation that for loans higher than ₹20 lakh, there should be a mortgage guarantee cover given by an authorised agency. (India Mortgage Guarantee Corporation is the only registered mortgage guarantee company at present).

This move by the regulator has brought in uniformity for all customers to get home loans up to 90 per cent, subject to their being eligible. This is a welcome move which will certainly benefit those borrowers who find it difficult to contribute 20-25 per cent of the cost from their own sources.

Do you think the guarantee requirement would act as a deterrent as borrowers may find it difficult to get it?

It will not be so as HFCs would take care of the paper work involved in getting the guarantee and the borrowers would not have to run around for that as the HFCs would have MoUs with the mortgage provider for extending such a cover. The main advantage for the HFCs would be that they need not worry about impact of any potential default because of the guarantee cover.

DHFL's loan portfolio is largely of loans below ₹25 lakh that account for nearly 75 per cent of the loan given. But with the loan guarantee in place, the high value loans of ₹50 lakh plus would witness an uptick. Even if the number of such loans granted does not increase significantly, the value of loan disbursed would go up because of higher disbursal.

The overall impact on the home loan front would be positive. We had aimed at growing by more than 20 per cent during the current fiscal but with the relaxation in norms we may grow a little more.

We do not expect an increase in EMI per lakh. However, customers need to note that their overall EMI will increase proportionate to an increase in their loan amount, as their initial contribution is considerably reduced.

I see the demand for home loans above ₹20 lakh in value to go up, on account of a reduction in the equity contribution of the home loan seeker. In view of expected reduction in equity, customers can borrow more to buy a bigger home. The interest will depend on various factors including market dynamics. At DHFL, rate of interest ranges from 10.15 per cent to10.25 per cent.

You have launched Diwali Dhamaka to coincide with Diwali festival. What is the targeted disbursement by this festival offer?

The home loan disbursement during this festive season is significantly large with almost 30 per cent of the third quarter disbursements coming during the Diwali season. During this auspicious festive season, we believe that a fixed processing fee structure will provide customers one more reason to buy their dream home, without financial access being a deterrent.

Business in Tamil Nadu is expected to grow at a rate of 35-40 per cent. The company's TN home loan portfolio stands at ₹1,800 crore and contributes to 6 per cent of our home loan business. Tamil Nadu has an increasing demand in the middle-income housing segment due to the influx of IT industries and BPOs. DHFL has spread its presence to 13 new points of presence over the past three months itself, reiterating its commitment and focus on providing home loans in Tamil Nadu.

The home loan industry grew from ₹43,851 crore in March 2000 to ₹7,47,911 crore as on March 2013, showing a growth of 1606 per cent. The mortgage to GDP ratio stands at ~8 per cent in India as on May 2014. It was among the lowest in the world and provides a huge opportunity for growth on a sustainable basis. In the first quarter, our financial performance has been positive, in terms of maintaining a healthy loan portfolio and net profit.

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