Home finance go slow with lending to builders

MUMBAI: Home finance companies may be the toast on stock exchanges, but they are going slow in lending to struggling builders and small companies.

The market for loans against property — LAP — which was among the fastest-growing segments in the loan market, is believed to have been building up risks in their books.

Indiabulls Housing Finance, which was among the pioneers in the LAP segment, has decided to reduce its exposure and assess risks that it writes in its books.

Similarly, LIC Housing Finance’s overall disbursements, which was up 10% in the September quarter, saw a slowdown in the LAP segment, with retail home loan clocking 13% YoY growth.

Companies have been wary of LAP for a couple of years now on fears of delinquencies.

India Ratings had said in a report that delinquencies may significantly increase in the next four quarters. “Delinquencies may even exceed 5% on a static basis for a few non-bank financial institutions (NBFCs), about three times those in FY14,” the report had said. “Signs of early stress are visible in the LAP business loan pools assessed by Ind-Ra, indicated by a sharp rise in 90 days past due (dpd) delinquencies for some of the large players.” Housing finance companies are worried over a combination of stagnant property prices, especially in metros and large cities, which are the primary markets for medium and large-ticket LAP. There’s a fear that squeeze on refinancing due to risk aversion building up in some financiers is bringing stress to the fore. Bajaj Finance has cut its loan against property business, and it is down 5% over the previous quarter.

The loan-to-value ratio has gone up to 70%-80% amid competition from new home finance companies. So earlier, if one got a loan of 60 lakh on a 1 crore property, he can borrow up to 70- 80 lakh.

“We have slowed down LAP because competition has taken a toll on the credit quality and margins of the business,” said Rajiv Jain, MD and CEO, Bajaj Finance.

Credits ET Realty

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