India’s National Housing Bank studying home loan defaults

By Vipin Agnihotri

It has come into the notice of The India Street that the National Housing Bank (NHB) is keeping a close watch on the possible defaults that could take place due to increase in the EMIs on the home loan borrowers. Though, there is not much concern on the housing finance companies but in case of housing loans offered by banks.

If experts are to be believed, around 85 to 90 percent of home loans borrowers have taken loans on the basis of floating rate. Home loan financiers such as HDFC, ICICI bank and State Bank of India (SBI) also have about 90 percent of their existing home loan clients on floating rate of interest.

In 2006, housing finance regulator NHB released a study projecting that 93.5 percent of home loans are floating rate loans. “We are thinking that the people who own single house for accommodation purpose should not feel the pinch of the rise in EMI. Rather the burden should be borne by the people who own two or more houses, most of time, which is for speculation purpose of selling when the price of the property appreciates,” pointed out NHB official in conversation with The India Street.

NHB at present are studying the data to assess the impact on the hike in EMI on defaults. Similarly, the Government has on its part been keen that the impact of high interest rates should somehow be softened on the small and medium borrowers. According to sources, Indian finance minister, P Chidambaram has asked the chief executives of public sector banks to protect the interests of borrowers in the Rs 8-10 lakh category to the extent possible.

It is worthwhile pointing that the last fiscal witnessed a steep surge in the interest rates. For example, in case of HDFC, the floating interest rate for home loans has gone up to 11.25 percent from 8.5 percent in the starting of fiscal year 2006-07.

Officials is of the view that number of housing finance companies say that in case a borrower is well below the retirement age, the loan period gets extended while EMI remains constant. Though, customers may well opt for a higher EMI without changing the loan tenure. A customer may also prepay part of the loan to keep the EMI and tenure unchanged. But there is an increasing fear of default in case the tenors are extended for the customers.

Suggested Reading

After Reliance, Aditya Birla group enters the Retail Sector Visit our India Resource Page The Latest India Real Estate Round Up Comprehensive Real Estate Report by India City Indian banks to Raise Interest Rates despite RBI Capital Reserve Reduction Change