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Tag: housing loans

  • Affordable, low-ticket home loans show early signs of rise in delinquencies

    Affordable, low-ticket home loans show early signs of rise in delinquencies

    Affordable and low-ticket housing loans are showing signs of an increase in early-stage delinquencies, given that low-income borrowers’ repayment capability has been impacted due to weaker rural growth and a fall in households’ savings.

    “There was a payment shock due to the rising interest rate cycle and multiple increases in interest rates, because of which some affordable segment players are now operating at upwards of 13–14 per cent. There has also been a drop in the savings rate compounded by the noise on small-ticket unsecured loan exposure. All of this has reduced the capacity and capability of servicing debt for the below ₹30 lakh loan segment,” said Kanika Singh, Chief Risk Officer, India Mortgage Guarantee Corporation (IMGC).

    Nitin Purswani, CEO at Medius AI, a cloud collection and debt management platform, said that the increase in delinquencies can be attributed to several factors, most notably the slower rural growth and its impact on repayment capabilities.

    Also read: How to reduce your home loan burden

    Early Signs

    Early indicators reflect an uptick in delinquencies, especially in the 30, 60, and 90 dpd (days past due) buckets, Singh said, adding that affordable housing NPA levels are around 2–2.5 times the industry average.

    Affordable home loan borrowers’ EMIs are estimated to have surged 20 per cent in the last two years. The decline in repayment ability is also reflected in the muted incremental demand for affordable houses.

    Fall in sales

    According to Anarock Research, the share of affordable homes in overall sales fell 11 per cent y-o-y to 20 per cent in H1 2023. In the top 7 cities, this segment’s share fell to 18 per cent from 23 per cent in H1 2022.

    Some industry participants believe the elevated delinquencies are due to temporary financial constraints and should correct in the medium term, led by strong macroeconomic variables and a resurgence in the rural economy. However, others said the issue could extend beyond affordable housing.

    “The situation in the low-income and affordable housing segments is concerning. This is a telling sign of broader economic stress and reflects a deeper systemic issue,” Purswani said.

    InCred Finance, in its Consumer Finance Review for December 2023, said that a key delinquency metric for affordable home loans is similar to that for regular housing loans, despite the much bigger ticket sizes and tighter credit checks for the latter.

    “The widespread industry perception is that housing loans are the safest lending products from a credit risk viewpoint. However, even in this segment, there are risks to be managed,” it said, adding that early delinquency rates on home loans are comparable to unsecured products like credit cards and personal loans, which suggests that lower home loan NPA rates are due to intense collection efforts rather than intrinsic customer quality.

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  • Bajaj Finance Q4 PAT up 25% on strong AUM, NII growth

    Bajaj Finance Q4 PAT up 25% on strong AUM, NII growth

    Bajaj Finance posted a net profit of ₹2,837 crore for Q4 FY23, up 25 per cent YoY led by strong growth in net interest income (NII) to Rs 7,104 crore — also higher by 25 per cent.

    For FY23, the retail NBFC posted a 62 per cent rise in the profit after tax to ₹10,290 crore led by 30 per cent NII growth to ₹26,401 crore. AUM was up 28 per cent YoY at ₹1.8-lakh crore, and the company held management and macro-economic overlay of ₹723 crore as of March 31.

    growth areas

    In the post earnings investor call, MD Rajeev Jain said 11 verticals of the advances saw strong growth. The product mix has remained largely steady from the previous year and is not expected to change significantly going forward, he said, adding that the NBFC will be able to grow comfortable while maintaining this mix.

    Pegging AUM growth at 20 per cent, Jain said the company should be able to dispense about 350 lakh loans in FY24.

    While retail growth is strong in line with the industry, Bajaj Finance is cautious on unsecured assets, where it has a market share of 7-8 per cent, as unsecured personal loans are “basically a risk business and a not balance sheet business”, he said.

    While on a net basis there no impact on NIM (net interest margins) in FY23, there will be gradual moderation in margins in FY24, Jain said, pegging the NIM impact for FY24 40-50 bps assuming one more rate hike by the RBI.

    “Part of it will get mitigated, if we take an overall P&L view, by peaking of opex metrics, best ever credit metrics, will partially mitigate that as well. So it should overall have a low impact on the RoA and RoE profile,” Jain said.

    Housing arm

    Wholly-owned subsidiary Bajaj Housing’s AUM grew 30 per cent YoY to ₹69,228 crore, with developer finance seeing the highest growth at 92 per cent. The vertical, which currently comprises 9 per cent of the portfolio, will rise and stabilise at 12-14 per cent as per industry standards, Jain said.

    He added that while there is some normalisation in growth, demand in the luxury and medium segment remains strong and the small size of the book gives the company sufficient headroom to grow even if there is some slowdown.

    Bajaj Finance disbursed 296 lakh loans in in FY23, adding a record 116 lakh new customers, of which 31 lakh customers were added in Q4.

    The surge in customer acquisition in Q4 was led by more capacity planning by the company in the last 120 days as business conditions picked up. This includes increasing the staff at stores and management level over the last 60-75 days, which has shown significant results.

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