Credit score takes centre stage in post-covid home loan boom
The lenders are pricing loans differently, depending on risk profile and creditworthiness of borrowers
Mumbai: Even as home loan interest rates touch a 15-year low thanks to the Reserve Bank of India’s easy liquidity stance, lenders are pricing loans differently, depending on risk profile and creditworthiness of borrowers.
According to industry observers, credit scores have become increasingly important for borrowers, with some of India’s top lenders levying different interest rates based on customer categories. For instance, at India’s largest lender, Shayan Ghosh(SBI), home loan rates were lowered to 6.7% on 1 March. But there’s a catch. This rate is available only for those with a Cibil score above 800.
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Typically, credit bureau scores are used to judge the creditworthiness of borrowers and are essential for getting loans, with some lenders offering lower interest rates to customers with higher scores.
While differential pricing of loans has been around for some time, banks are now more reliant on them to segregate riskier borrowers post the covid-19 pandemic that disrupted cashflows and repayment capabilities.
SBI borrowers with credit scores between 700 and 750 will have to shell out a higher rate of 6.9% on home loans, whereas those in the 751-800 band will be eligible for loans at 6.8%. These are rates applicable to loans up to ₹75 lakh, and borrowers have to pay interest in the range of 6.75-7% for loans over ₹75 lakh and up to ₹5 crore, again depending on their credit rating.
“For customers with a credit score below 700, the concessional offer will not be available, and they will have to pay the regular rate of 7-7.25% for loans up to ₹75 lakh," said an SBI official, requesting anonymity.
SBI’s home loan book touched ₹5 trillion last month, up from ₹4.84 trillion as on 31 December, commanding a 35% market share among all commercial banks. Its home loan disbursements witnessed a 23% year-on-year (y-o-y) growth in December.
Meanwhile, experts estimate retail stress to rise in the coming months. India Ratings and Research believes that stressed assets in the individual loan segment could increase almost 1.7 times in the second half of FY21. For state-owned banks, it could further increase to 2.9% in FY22 from 2.1% in FY21, while it could increase to 4.3% from 1.2% for private banks. Stressed assets comprise bad loans and restructured loans and are seen as a more accurate measure of delinquency.
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That apart, there is also a private sector lender that announced an even lower home loan rate on the same day as SBI. Kotak Mahindra Bank lowered its home loan interest rate by 10 bps to 6.65%. However, much like SBI, this low rate will only be applicable to borrowers with a credit score of over 800.
“Credit scoring is very important, and I think what we have seen, over a period of time, that portfolios are risk-ranked based on that. However, despite covid-19, the home loan portfolio has performed reasonably well," Ambuj Chandna, president (consumer assets) at Kotak Mahindra Bank told Mint.
According to Chandna, the bank is seeing a significant jump in new home loans, attributable to two key factors.
Firstly, the core demand for housing has increased as schooling and office work have moved indoors due to covid, prompting people to upgrade homes. Secondly, the availability of ready inventory, coupled with stamp duty cuts, has aided this growth.
As on 31 December, the private sector lender’s home loans and loans against property book stood at ₹49,977 crore and constituted 22% of all customer assets.
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