New Document top_band
 
Business Standard

Buyers default on second home loans

High rates of interest on home loans, high food and medical inflation and grim job situation have led to repayment issues

Read more on:    Investment | Defaults | Home Loans | Retail Banking
Related News

Banks have started seeing on housing loans especially those taken to finance second homes bought for purpose. High rates of interest on , high food and medical inflation and grim job situation have led to repayment issues.
 
As per the head of a leading public sector bank, there are cases coming up these days largely because many have had to either leave the their jobs or take a pay cut. “And if either situation extends to beyond three months, individuals find it difficult to stick to the repayment schedule,” explained the executive.
 
Most of these loans are two to three years old. The rate of interest on home loans have risen by at least 1.5% in this period. In December 2010, most borrowed at around 9.50%, these rates today are in the range of 10.75-11%. On September 20 the Reserve Bank of India raised key interest rates 14th time since March 2010. The outstanding in these case are anywhere between Rs 50 lakh and Rs 80 lakh, says bankers.
 
"Customers who are borrowing money to buy homes for investment purpose tend to be more vulnerable during economic slowdown than those who are buying properties for end-use. There are instances where some of the customers who have borrowed money for buying a second home have defaulted. When property prices are stagnant or risks on these portfolios deteriorate much faster. People who have bought a house for investment purpose tend to have lower emotional attachments and they tend to walk out and cut their losses. Recent data show that property prices in India have fallen in 22 of the 26 prime markets. Hence, there are instances of such defaults," said a banker in-charge of retail lending business of a top private sector bank.
 
He, however, said it is difficult to term these delinquencies as willful defaults. "Willful default is a technical term used by the Reserve Bank of India. Certain conditions have to be met before banks can classify a default as willful. I am not sure if we can call these delinquencies as willful defaults," he said.
 
But this instance is higher among public sector banks than among private sector banks. In a recent interview, former State Bank of India chairman Pratip Chaudhuri said that in a private sector bank, the owners drive to generate more market cap. But public sector banks go by topline. Suppose you are lagging behind in reaching the topline target, you go out and start lending to anybody who takes unsecured loans.
 
V N Kulkarni of Bank of India's Abhay Debt Counselling says his firm has been seeing a higher number of queries for debt restructuring over the past three to four months. He adds that the numbers are not substantially high as not many people are aware of debt counsellors. “It is not just restricted to second home loans but even the first ones along with other loans like personal loans and credit cards,” he said.
 
Sukanya Kumar, director of RetailLending.com, a loan advisory firm, said, “Most of the individuals defaulting are those who lost their jobs around June-July this year. In fact, many such new buyers have deferred their plans to buy properties,” she says.
 
However, a banker in-charge of retail banking business of a foreign bank says no such trend is visible at this point on second home buyers defaulting on repayment. "We are not seeing any such thing. There is no significant stress in these portfolios," he said.

Read more on:   
|
|
|

Read More

Govt yet to name new State Bank of India chief

Government sources indicate a new chief would be appointed in a couple of days

Quick Links

News Rss icon

LIC Housing Finance takes over Orbit Corp's Mumbai property

Orbit's total amount outstanding is Rs 95.50 crore including interest, expenses and other charges

VCES a rare opportunity, make fresh start, says Chidambaram

The FM asked hose in trade and industry to seize the offer

Govt allows greater flexibility for pension fund investments

But the EPFO board would need to approve the changes before they become official

Back to Top