'Unless banks focus on the Rs 10-15 lakh loan segment, growing affordable housing will remain a challenge.'
The Indian Mortgage Guarantee Company (IMGC) -- the only of its kind in the country -- has guaranteed over Rs 8,700 crore in FY25, up 40 per cent over FY24.
The total guarantees written by the company are at about at Rs 35,000 crore.
IMGC aims to ramp up its portfolio five-fold to Rs 1 trillion over the next few years.
Mahesh Misra, managing director (MD) and chief executive officer (CEO) of IMGC, spoke with Raghu Mohan/Business Standard over the phone on issues facing the home loan sector.
Can you give us a sense of the stress level in home loans?
We are starting to observe early warning signals, particularly in affordable housing. But I wouldn't necessarily classify it as stress just yet.
Housing finance is dominated by banks, which account for about 70 per cent of this business, but it is the housing finance companies (HFCs) which are more involved in the affordable segment; and many of them rely on advanced analytics to monitor risks.
One key observation is that individuals with higher leverage are seeing their credit bureau scores deteriorating.
If someone had a score of 740 three years ago, they are now defaulting on unsecured loans, which could eventually impact the ability to repay home loans.
That said, home loans generally hold a higher priority in repayment hierarchies as these are typically self-occupied homes.
So, while delinquencies are slightly higher, this is mainly due to over-leveraging, especially in the self-employed segment.
Isn't it comforting that the underlying asset is appreciating, and provides a cushion?
Price appreciation matters if the property is being viewed as an investment.
In recent years, the percentage of those buying homes for self-occupation has increased significantly, and speculators have almost vanished.
So while it's true that the asset appreciates, this doesn't offer much solace to borrowers living in the home who have to manage their repayments.
What explains the reluctance of some banks to venture into affordable housing even as they are fine giving out unsecured loans?
There are two dichotomies here. First, affordable housing has higher unit economics -- underwriting a Rs 2 lakh loan costs almost the same as underwriting a Rs 45 lakh loan.
It involves lending to a riskier segment; and requires a specific set of underwriting skills that banks don't necessarily have or want to develop, such as assessing cash flows instead of declared incomes.
Additionally, not all lending institutions have the same level of collateral comfort.
HFCs are willing to take more risks on collateral, including the likelihood of demolition.
State-run banks are already committed to other financial inclusion initiatives like Mudra and opening of JanDhan accounts; and don't have a specific mandate to grow affordable housing.
The second dichotomy arises from government policy. The government has launched a guarantee programme for loans up to Rs 20 lakh for borrowers with annual incomes of Rs 6 lakh or less, to promote affordable housing.
At the same time, the Reserve Bank of India has revised the priority sector lending (PSL) guidelines, raising the cap for PSL-eligible housing loans to Rs 50 lakh from Rs 20 lakh.
This change, while understandable due to inflation adjustments, creates an inconsistency in messaging.
On one hand, the government promotes low-ticket home loans; on the other, banks now have an easier route to meet PSL targets by giving out bigger ticket home loans.
What share of IMGC-guaranteed loans are under the Pradhan Mantri Awas Yojana (PMAY)?
Nearly 85 per cent of the loans we guarantee fall under the PMAY. For affordable housing to grow, state-run banks must start taking it more seriously.
Currently, the average ticket size for a housing loan from them is around Rs 30 lakh.
Unless banks focus on the Rs 10-15 lakh loan segment, growing affordable housing will remain a challenge.
Moreover, half of the housing loans availed of are concentrated in the top five or six cities.
There's significant untapped economic potential if these banks begin to expand their reach to smaller geographies and take on higher risks.
Right now, most state-run banks heavily favour the salaried segment; and the self-employed segment is often under-served.
While programmes like ours can act as a backstop to mitigate risk, the mindset around lending to the self-employed segment remains cautious.
What has been the recent trend in sign-ups for IMGC's support?
We now have more than 25 lenders onboard, and in the last quarter of FY25, signed up three new lenders: GIC Housing, Bank of India, and a HFC we hadn't worked with previously.
We've guaranteed over Rs 8,700 crore in FY25, which is nearly a 40 per cent increase from last year.
The total guarantees we've written are approximately Rs 35,000 crore.
Until now, we've only guaranteed home loans, but we've recently received approval to guarantee other products, such as loans against property, provided they are backed by residential collateral.
Further, the National Housing Bank has launched a securitisation company, RMBS Development Company, which will improve liquidity.
As this market accelerates, we will likely play a role by guaranteeing tranches, making the overall structure more capital-efficient.
Feature Presentation: Aslam Hunani/Rediff.com
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