Rising interest rates are likely to increase the equated monthly instalments (EMIs) of home loan borrowers by about R6,000 crore annually, rating agency Crisil has said.
Moreover, higher EMIs and a slowdown in economic growth would also result in an increase in non-performing assets (NPAs) of financiers. On the other hand, as the teaser loan portfolio gets linked to the prevailing higher market rates, starting April 2012, the profitability of financiers will increase, the rating agency says.
The NPAs of financiers are expected to increase on account of the steep rise in the interest outgo for borrowers, coupled with the slowdown. As increase in monthly payments is not commensurate with the growth in income levels, the instalment-to-income ratio (IIR) has increased substantially for home loan borrowers.
In fact, the portfolio asset quality of lenders has already begun showing signs of strain. As of the June 2011 quarter, the asset quality of industry players, such as HDFC, LICHFL and DHFL, has deteriorated by 10-40 bps on a quarter-on-quarter basis.
As per Crisil Research estimates, as of March 2011, teaser loans accounted for 25% of the housing loan portfolio of R5,10,000 crore. A majority of the portfolio of these loans belongs to banks that were among the first to launch this innovative scheme. Of the teaser loan portfolio, banks command a share of approximately 70%, while HFCs account for the rest.
Crisil observes that the reference floating rate for the industry has increased by 200-250 bps since April 2010, which translates into an average increase of 15 % in EMIs.
?The rise in interest rates has not yet affected customers who have opted for teaser loan schemes, which were launched in early 2009 to stimulate dwindling home demand,? it says, adding that, for a teaser scheme customer, the rates are fixed for the initial 2-3 years and, subsequently, get linked to the prevailing market rates. As such, teaser loans taken by home loan borrowers would get reset to market rates, which would be relatively high, from April 2012.
On the positive side, yields for financiers will improve in 2012-13 as teaser loans taken in 2009-10 get reset to market rates.
