Informal income assessment a key monitorable
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.