What worries Mahesh Misra is very low mortgage penetration in India. The mortgage to GDP ratio in India is now at 10 percent; in other Asian markets, this number is as high as 30 percent, and in developed markets, it touches a staggering 65 percent.
Misra, the chief executive officer of India Mortgage Guarantee Corporation (IMGC), a joint venture between National Housing Bank, Genworth, International Finance Corporation, and Asian Development Bank, however, looks at the silver lining: IMGC crossed Rs 7,000-crore loan guarantee mark last month. “We have been doubling our balance sheet since the past three years,” he claims.
IMGC, which began operations in 2013, had a sedate start but has gathered steam over the last few years. It now boasts 14 bank partners, including SBI, LIC Housing Finance, Axis Bank, HDFC, and ICICI—its biggest partner. “The default rate so far has not been worrisome,” Misra says, explaining how IMGC has seen a spurt in business on the back of affordable housing. Edited excerpts from an interview: Q. The initial years were quite muted for IMGC. What were the early challenges?
Like any new financial product, the biggest challenge was to create a market and convince lenders that this product will help them grow. You need to understand the benefits of this concept, which are fairly advanced in developed countries. Take, for instance, benefits for the borrowers. Mortgage guarantee (MG)-backed home loans increase loan eligibility, helping borrowers secure home loans of higher amounts with longer tenures and lower EMIs. Lenders can manage their credit risk, given that a proportion of risk would stand transferred to the mortgage guarantor. It also improves underwriting quality for lenders, as each loan guaranteed would pass through internal credit screens of mortgage guarantor.
Post the deal, insights from the analytics and performance trends of contracts guaranteed by the company could help lenders better understand the portfolio performance and improve risk monitoring. Once these benefits became clear, it was easy to answer the question lobbied at us by lenders: What can you do that we can’t? Fortunately, our credentials were never questioned because of the stakeholders involved.
Another tough task was challenging the notion that housing finance is quite safe. Everyone believes that nothing can go wrong in their portfolio. Therefore, the need to expand a guarantee product was a challenge. Lenders believed that they were already achieving a certain growth without a guarantee. Therefore, it was not a priority. So for the first three years, the journey was in one direction and challenging. However, over the past three years, it has been a different story, which has been built on affordable housing. Q. How did affordable housing help you scale?
Even today, affordable housing falls under the bracket of Rs 30 lakh, which makes up 87 percent of our portfolio. Our average ticket size is reducing every year, which is a very good sign. Note that the lenders we have cover more than 60 percent of this market.
SBI is the largest lender in the market, with 20 percent; HDFC with 16 percent; ICICI has 10 percent, and LIC has 7 percent. During the past four years, we have grown at a CAGR (compound annual growth rate) of about 140 percent. We just crossed Rs 7,000 crore loan guarantee last month. We aim to exit this year with Rs 10,000 crore. In terms of traditional housing finance companies, nobody would have scaled at this pace.
One of the biggest positives in the lending ecosystem today is that nobody wants to be reckless anymore. The market will not give anyone 100 percent comfort, especially at a time of a certain slowdown and asset price correction. People want to grow cautiously and that mindset has helped us.
Most of the large lenders have not done affordable housing the past. If you look at the Indian market, the top five cities are nearly 60 percent of the market. While most lenders never went deep into Tier II and beyond, slowdown in the top cities compelled them to look for opportunities at such places. In affordable housing, 40 percent are new to credit, which means this the first borrowing relationship they have with anybody. That is where our niche lies as we become the data repository for the segment. And with our analytics, people will be able to lend smart. Q. Do you see a correction coming up in the real estate market?
Internationally, when asset prices fall, the slowdown becomes prolonged. On average, real estate prices take six years to correct. Typically, when there is a slowdown, the correction takes longer. We are still going through that phase and it may not correct very soon. The speculator has vanished from the market, and right now, the industry is going slow. So a lot of today’s demand is coming from the end-user. However, a price correction has happened in certain markets. Q. How has the default rate been so far?
We have been sensible in what we have guaranteed. The default rate has not been worrisome. We have seen an increase in the claims we have been paying over the past few months. Q. Have you noticed any striking trend over the past three years?
Yes. One, the borrower’s age has stagnated. A generation back, people typically bought homes just before their retirement. Then came the generation where people started buying house a little younger and the average borrower age came down to 36. Interestingly, it has plateaued at 36. This is not a healthy trend. One big reason for this remains affordability. Q. Don’t you agree that the awareness about mortgage is still quite low?
We need to do what the credit bureau has done. Look at the way people have been made aware of their credit scores. The journey has been exceptional.