Money & Banking

‘Delinquencies have worsened, but not as bad as initially feared’

Surabhi Mumbai | Updated on January 15, 2021

The loan restructuring window has just ended, and it will take another 45 days for more clarity on defaults in the housing finance sector, said Mahesh Misra, CEO, India Mortgage Guarantee Corporation (IMGC). IMGC is the country’s first mortgage guarantee company, and provides mortgage default guarantee to lenders. It has guaranteed over 57,000 homebuyers, crossed the ₹8,500-crore portfolio and onboarded 15 lender partners. In an interview with BusinessLine, he said there will be continued demand for affordable housing and larger players will do well. Excerpts:

Is there concern about rising stress among housing finance companies?

Delinquencies have certainly worsened over the last year, but they are not as bad as initially feared. Most of our lender partners have seen about 20 per cent to 30 per cent increase in delinquency, but it is still not at a worrisome level. The loan restructuring window has just ended and it will take another 45 days for more clarity. Lenders will do a bit more reconciliation and filtering of data. In the last five years, the housing industry has been dominated by end users who tend to be more genuine in payments as it is the most important asset they have. The increased stress in portfolio is because businesses are not in the same shape as they were last year and some people would have lost jobs.

What is your outlook for the housing finance sector?

The sector is doing quite well. Property prices are attractive and interest rates are low. It is a good time to lend. Large banks have more appetite to grow secured businesses. Nearly 65 per cent of lending is done by banks in the sector. It is a good time for larger players. Smaller players are seeing some challenge as they have to take care of increased delinquencies and liquidity will be a bit of a challenge. So, they will find it difficult to compete with entities offering loans at 6.8 per cent or so. We also see a much sharper emphasis on promoting affordable housing, especially among public sector banks. We are talking to three PSBs, where their main focus seems to be affordable housing. I see the demand for luxury homes dropping at this stage unless they are from reputed builders or ready-to-move-in projects.

What kind of demand is there for mortgage guarantee?

We had our highest ever month in December 2020. During the pandemic, we signed two new lender partners, and in this quarter we expect to sign on another three to four more partners. For this quarter of January to March, we expect the run rate to be nearly 70 per cent higher than last year.

Is it a paradox that there is demand for housing amid low growth, job losses?

Only people with income stability are buying homes. In certain Tier 2 and 3 towns, we see a lot of interest from government employees. For them, buying a home has become very affordable, interest rates are low and income is assured. There is a fair bit of refinancing also happening, where larger players are buying over loans that are running at higher interest rates in the past.

What are the plans of IMGC for the year ahead?

We have contractual arrangements with all the large lenders, including LIC Housing Finance, HDFC, ICICI Bank, Axis Bank and State Bank of India. We intend to now start focussing on smaller HFCs and expand our client base with them. We believe it is the right time to partner with more PSBs also.

What are your expectations from the Budget?

Many States have reduced stamp duty, which has been a huge catalyst. Even without the Budget, States are recognising the need to get people to buy homes and the trigger it provides. There could be some income tax concessions, but regardless of that end users will continue to buy.

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Published on January 15, 2021
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