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Feb 18th
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Home Best Practices India Defaults in Home Loans witnesses decline

Defaults in Home Loans witnesses decline

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The Credit Information Bureau of India ( Cibil) in a recent survey pointed out that more than 88% of new home loan borrowers acquired by banks during 2011 had a credit score of 750 and above. 
CIBIL TransUnion Score is a three-digit number ranging between 300 and 900 assigned to borrowers, depending on their repayment habits. Customers with scores closer to 900 are the least risky.
That’s a near-three-fold improvement over 2008, when barely 23% of bank home loan customers were in the least risky zone.
The banks had been extremely cautious and diligent in past four years and have successfully been able to make judgement on credit quality of customers. 
The market is expected to grow 17% this fiscal.
According to bankers, there are two kinds of home loan borrowers: first, those who have a credit history and are therefore tracked by credit bureaus, and second, those approaching a bank for the first time. The latter category customers do not have a recorded credit history and possibly form the riskier lot.
“The mix is usually 60:40, where customers tracked by credit bureaus form the higher concentration,” said Jairam Sridharan, senior vice president (consumer lending), Axis Bank.
“We avoid customers with any bad information on their credit report, ensuring that we get the best borrowers only. However, in case of first time borrowers, we use our own judgement,” said Sridharan, pointing out that the first-time customers are usually newly employed and in their early 30s.
According to the Cibil report, more than a third of the loans sanctioned in 2011 were to borrowers less than 35 years of age, while about 70% were to those below 45.
Public sector banks tend to take a stricter approach toward first-time borrowers.
“If a customer does not have any credit history, he has to still fulfill a number of requirements before his application is accepted. We usually prefer our own customers for a first time loan. Therefore, we have some details regarding their financial standing,” said Ram Sangapure, general manager (retail), Central Bank of India.
Risk management in banks has improved over the years, while the credit bureau data has also helped, believes Sumit Bali, executive vice-president (consumer loans), Kotak Mahindra Bank.



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