A subdued loan demand from businesses is increasing competition in home loans, leading to a rise in the number of self-employed individuals getting mortgages. Home loans to self-employed accounted for 30 per cent of mortgages in fiscal 2017-18 as against 20 per cent earlier. But the flip side is that delinquencies are also rising.
Gross non-performing assets (NPAs) in the segment are estimated to have inched up by 40 basis points (100bps = 1 percentage point) to around 1.1 per cent by the end of fiscal 2018, compared with about 0.7 per cent a few years back. According to a report by ratings agency CrisilNSE 0.49 %, home loans to the self-employed segment have been growing at a compounded annual growth rate of 33 per cent in the past four years compared to overall 20 per cent expansion in housing finance. Outstanding home loans in this segment are expected to have topped Rs 2 lakh crore by the end of fiscal 2018.
What has been driving growth is the entry of a host of new housing finance companies (HFCs), which have been growing aggressively in this segment. Also, larger HFCs are pushing into the self-employed segment as banks ratchet up presence in retail following weak credit demand from corporates and asset quality pressures, Crisil said in the report.
HFCs also get better returns from lending to the self-employed. Since this segment is relatively riskier than the salaried segment, HFCs tend to demand higher yields to offset increased credit costs. Further, to surmount borrower data issues, HFCs are adopting practices such as offering lower loan-to-value ratio, higher in-house sourcing, and developing expertise to assess undocumented income.
Crisil Ratings senior director Krishnan Sitaraman said, “Several initiatives of both the government and the regulator in the recent past have led to fast growth in home loans taken by the self-employed. We expect such mortgages to continue showing good growth because of the sharp focus of smaller HFCs and increasing interest of the larger ones.” Crisil Ratings director Rama Patel said, “The two-year lagged NPAs in the self-employed segment, at around 1.8 per cent, is much higher compared with about 0.6 per cent in the salaried segment, where the portfolio quality has remained largely stable over the years.”
(This article was originally published in The Times of India)