Home Financing Options
Khushru Jijina, MD, Piramal Finance & Piramal Housing Finance is of the view that HFCs and NBFCs ability to increase or decrease their loan rates as per the selling requirements work out to be beneficial for the right borrowers.
The Government continued its agenda of ‘Housing for All till 2022’ by announcing SOPs for the Affordable Housing segment. This is hugely beneficial for that category of home loans since majority of the home buyers in the affordable category look to borrow money from banks and financial institutions. Further subsidies on affordable housing were rolled out to drive demand in the next few months. This segment of loans is driven by both salaried and self employed end users. Hence identifying the right borrower and the right set of credit assessment parameters will assume tremendous significance for the lenders. With the recent hike of MCLR by SBI, a reversal of interest rate cycle is also being triggered. This is likely to impact near term demand for housing loans as well.
Before opting for a home financing scheme the most important aspect is to finalize on the amount one is looking at. Buyers with good credit ratings have access to a higher loan component and have a plethora of options available. A classic example can be one of our products called “SUPER Loans” (Step-up EMI Repayment Loan) which offers up to 20% higher loan eligibility or an option to choose to get 15% lower EMI on an existing loan. Thus increasing the appetite of a client to go for the perfect home he/she desires for.
With interest rates now looking upwards, fixed interest loans can also be looked at in case one can strike a good deal with the lender. Such loans are however pegged at 0.5% to 1% higher rate of interest. It is also important for buyers to understand the concepts of MCLR (Marginal Cost of Lending Rate) and PLR (Prime Lending Rate) as most of the banks now offer floating interest rates linked to MCLR with clear intervals at which the interest rate would change automatically.
Housing as a product has slowly transitioned from an investor driven demand to more of an end-user driven demand now. In terms of housing finance products, there is a huge void in funding non-salaried class of buyers with most lenders focusing on the salaried class only.
HFCs & NBFCs
Loans by HFC (Housing Finance Companies) and NBFCs (Non-banking Financial Companies) are linked to PLR which is outside the ambit of RBI. With lesser restrictions, they also provide buyers with more options, especially for those who fail to meet the eligibility criteria for banks.
NBFCs cater to segments which still do not fit into the purview of the banking sector. They have majorly eaten into the share of PSU banks with more than 40% share in total loans in 2017. Key attributes like better product lines, lower cost, faster turnaround time, wider and effective reach, strong risk management capabilities to quickly react to early warning signals, and better understanding of customer segments provide NBFCs with a great platform to expand their loan bases in the current improving macroeconomic conditions.
As a challenge, NBFCs are witnessing a decline in the LAP (Loan against Property) portfolio. With pressure from increased competition, declining margins and low demand post demonetization and GST, the growth rate of LAPs is expected to flatten out. Most of the existing NBFCs also seem to have gone overboard with retail lending and data shows that it is the same set of customers where the entire industry is getting overleveraged. A reassessment of traditional risk underwriting measures with more usage of advanced analytics to identify the right set of clients may probably play a vital role in creating a robust client base in the retail category.