ING Vysya Bank stays away from retail housing finance

Trims home financing due to lower pricing, foreclosures

At a time when most banks have switched focus on expanding their retail housing finance business to preserve asset quality in an uncertain economic environment, ING Vysya Bank appears to buck the trend. The private sector lender has significantly scaled down its incremental disbursal of home loans because of lower pricing and rising incidence of pre-payment.

“The difference in terms of pricing between home loan today and an average self-employed customer would be in the range of 150 to 200 basis points. So, that is one of the key reasons why the focus has to be more on loan against property compared to home loans... Secondly, on a commercial basis, because of higher incidence of foreclosure we decided to stay away from it (housing finance),” Mahesh Dayani, country head – retail assets at ING Vysya Bank, told analysts during a recent interaction.

While the bank has not exited the retail housing finance business, it is neither stepping up the incremental acquisition of home loan borrowers. In the first three months of this financial year, housing loans constituted only nine per cent of ING Vysya Bank's aggregate mortgage disbursals compared to 30 per cent in 2013-14 and 60 per cent in 2012-13. The share of home loans in the lender's mortgage book is now below 60 per cent compared to 90 per cent earlier.

This is in sharp contrast to the industry trend. At the end of June, 2014, while gross bank credit was up only 13 per cent from a year earlier, home loans increased by 17 per cent, the RBI data showed.

But with RBI waiving the pre-payment penalty on housing loans, ING Vysya Bank has decided to go slow on this business. “Last year if you would recollect, the foreclosure charges for a home loan were completely done away with. That saw a lot of foreclosures happening on the home loans. So, even if I board a customer at 10.50 per cent, it does not really guarantee that the customer is going to be sticky for the next seven to 10 years. The account could move out and we would continue to lose,” Dayani said.

The bank is now focusing on growing its loan against property business, where the pricing is relatively better. “We want to be in a segment, which we understand best. Self-employed segment is our core strength and they are primarily customers for loan against property. We will continue to scale down our home loan portfolio and grow the loan against property book as long as the pricing arbitrage remains in these two products,” Dayani told Business Standard.

He added that the delinquency rate is more or less similar for both these lending products. Loan against property now constitutes 91 per cent of ING Vysya Bank's incremental mortgage disbursal and is close to 10 per cent of the bank's retail advances.

NO DIRECTION HOME?

• ING Vysya Bank scales down its disbursal of home loans
   
• In the first three months of FY15, housing loans constituted only 9% of its aggregate mortgage disbursals
   
• RBI had earlier waived off the pre-payment penalty on housing loans

Share of home loans, loan against property in ING Vysya Bank's aggregate mortgage disbursal

Period	Mortgage Disbursal	Share in Mortgage Disbursal
		Home Loans	Loan Against Property
Q1FY15	Rs 320 crore	9%	91%
FY14	Rs 1,810 crore	30%	70%
FY13	Rs 1,760 crore	60%	40%
FY12	Rs 1,240 crore	52.00%	48.00%
FY11	Rs 1,700 crore	65%	35%
FY10	Rs 1,050 crore	86%	14%
Source: ING Vysya Bank