Housing Loans To Self-Employed Prone To Turning Bad, Says Crisil
Affordable housing push prompted more home loans to self-employed individuals, these are now turning sour.
A higher number of self-employed individuals are now taking home loans, driven by the government’s thrust on affordable housing, but that’s led to a rise in delinquencies as well.
Housing finance companies’ loans to self-employed borrowers rose to nearly 30 percent of their portfolio from 20 percent four years ago, rating agency Crisil said in a report today. The gross non-performing assets in the segment climbed 40 basis points in the last five years to 1.1 percent as of March, it said.
This trend warrants caution because lending to the self-employed is largely based on assessed income, Crisil said. Also, self-employed are relatively susceptible to volatility in cash flows and economy disruptions like demonetisation, possess limited banking experience and have little credit history, it added.
Demonetisation crippled cash-driven real estate market, among the largest contributors to jobs and the economy. The government offered low-income borrowers interest subsidy on loans for affordable homes to expand access to housing and spur economic activity in rural and semi-urban areas. But the Goods and Services Tax rollout hurt the private investment cycle, leading to subdued credit demand from corporates amid asset quality pressures. As a result, lenders increased focus on home loans and started lending to the neglected self-employed category, Crisil said.
While the research agency flagged concerns over such lending, it said home loans to salaried individuals, that housing finance companies grant over two-third of their overall home loans to, has had a stable asset quality over the years.
The two-year lagged non-performing assets in the self-employed segment at 1.8 percent is much higher compared with 0.6 percent in the salaried segment.Rama Patel, Director, Crisil Ratings
Bad loans of housing finance companies have seen a marginal rise over the last two years. Non-performing assets of these lenders, as a percentage of loans, stood at 0.9 percent and 0.8 percent in financial years 2016-17 and 2015-16 respectively, according to data provided by Crisil.
A Reserve Bank of India report in January said that small-ticket housing loans are at a greater risk of turning bad. Non-performing assets for housing loans up to Rs 2 lakh granted by banks and mortgage lenders rose 60 basis points to 10.4 percent in 2016-17 from a year ago. Delinquencies in the segment remained the highest among in home loan categories, well above the market average, the central bank said.