In­for­mal in­come as­sess­ment a key mon­i­torable

Banking Frontiers - - Research Notes - Me­hul@bank­ingfron­tiers.com

The HFCs’ abil­ity to as­sess cash flow gen­er­a­tion of var­ied bor­rower classes while main­tain­ing low LTV and in­stall­ment to in­come ra­tios are ex­pected to do well on the as­set qual­ity met­rics. Ind-Ra says HFCs have ben­e­fited from ac­cess to stronger in­for­ma­tion, which helps them to price risk ad­e­quately. The credit bu­reaus’ data now pro­vide granular data on mi­cro pocket on the credit his­tory, col­lat­eral and credit per­for­mance and even com­peti­tors’ port­fo­lio per­for­mance.

The agency be­lieves low ticket hous­ing is a re­la­tion­ship driven busi­ness, which in­cludes as­sist­ing the cus­tomer for sourc­ing ap­praisal (un­der­stand­ing a cus­tomer cash flow), in­cor­po­rat­ing credit cul­ture to ser­vice the EMIs or pro­vid­ing as­sis­tance dur­ing dis­tress.

Port­fo­lio churn­ing (18-24 months on­wards) as cus­tomer credit scores de­velop, re­mains a high risk over the medium term. Ring fenc­ing of ex­ist­ing port­fo­lios would be a key mon­i­torable for the HFCs. The agency be­lieves the ag­gres­sive growth through ex­ter­nal sourc­ing agents and out­sourc­ing of credit ap­praisal mech­a­nism (partly / fully) could be neg­a­tive for the fi­nancier.

As HFCs in­crease, as­set strat­egy could be ei­ther to in­crease the ticket size and stay on the fridges of large ur­ban set­ups or go into deeper ge­ogra­phies where there is more ef­fort in­volved but a likely de­crease in the ticket size, be­lieves In­dia Rat­ings and Re­search.

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