Home loan borrowers, already reeling under the persistently high inflation, should brace up to shoulder additional financial burden. Rating agency Crisil has said rising interest rates and the reintroduction of teaser loans by various banks would put an additional burden of Rs 6,000 crore on them. According to Crisil, borrowers would be hit by an extra amount annually, in the form of higher equated monthly installments (EMIs).
Borrowing costs have risen for both categories of borrowers—those who pay higher EMIs, as well as those who have opted for longer re-payment tenures. “Customers paying higher EMIs face an estimated additional annual burden of around Rs 3,500 crore,” Crisil said in its report.
The report also says borrowing costs rose 15 per cent for borrowers who opted for floating rates. “Floating interest rates for home loan borrowers increased by around 250 basis points (bps) since April 2010, due to a continuous increase in key policy rates,” the report said.
While 40 per cent customers chose to pay more per month, 60 per cent preferred an increase in the tenure or part payment. The ones who chose teaser loans would be in for a shock from April next year, since interest rates would be adjusted with the ones prevailing in the market. The yield differential between teaser rates and the reset rate is likely to be 300-350 bps.
“About 25 per cent of the housing loan portfolio of Rs 5,10,000 crore, as of March, comprises teaser loans. Once interest rates are reset to prevailing market rates (from April 2012), we estimate an additional EMI burden of Rs 2,000-2,500 crore annually on this account,” Crisil said. Currently, those who have taken loans under the teaser schemes would not be affected, since they are fixed for the initial two-three years.
Another area of concern is asset quality. Increasing rates may raise the profitability of the financiers, but the additional financial burden may lead to bad debts, said Ajay Srinivasan, head, industry research, Crisil.
“NPA levels are expected to go up by around 30 bps to 1.9 per cent by March 2013. However, losses on this account are expected to increase only marginally,” said Prasad Koparkar, head (industry and customised research), Crisil.