Rising interest rates and high prices over the last year have impacted the repaying capacity of small home loan borrowers with several banks seeing stress in small ticket home loans of up to Rs 10 lakh. While defaults may not have risen much, repayment schedules have been delayed, say bankers.
"In the last year people have been facing some constraints as salaries have not increased much and in some cases there were no bonuses. We saw some stress in the home loan segment below Rs 20 lakh,'' says the head of retail of a public sector bank.
In case of loans above Rs 20 lakh, borrowers often have enough cushion to withstand a rise in the monthly interest outgo. But in case of smaller sized loans, where borrowers' salaries are lower, a higher interest outgo and rising prices of essential commodities reduces the repaying capacity.
Mr Jairam Sridharan, senior VP and head (consumer lending and payments) of Axis Bank says that there is some concern about repayments in small ticket housing loans, up to Rs 10 lakh.
Last week, the government extended the 1 per cent interest subvention for home loans up to Rs 15 lakh to March 2013. The government had made a provision of Rs 400 crore for this scheme in the last annual Budget. Despite this subsidy, this segment is not very profitable for banks, given the small size of the loans. “We have to sanction a large number of loans and also do the due diligence and
processing of these loans,'' the PSU bank official says.
Bankers are hopeful that the proposed credit guarantee scheme for small sized housing loans, up to Rs 5 lakh, will prevent too many defaults in this segment. The guarantee cover available under the scheme would be to an extent of 90 per cent of the amount in default, subject to a ceiling of 90 per cent of the sanctioned housing loans up to Rs 2 lakh and 85 per cent of the amount in default,
with a ceiling of 85 per cent for sanctioned housing loans between Rs 2 lakh to Rs 5 lakh.
Home loans are usually one of the safest for most banks, with very few defaults, as the residential property is available as security. Most borrowers, are prompt with repayments as they do not want to lose their house, say bankers.