Money Manager: Caught in the quicksand
India Mortgage Guarantee Company’s (IMGC’S) portfolio has crossed the ~8,000-crore mark. The country’s only player in this space has on-boarded 15 banks and housing finance companies (HFCS), and guaranteed over 50,000 home loans, largely in the affordable housing segment. IMGC’S chief executive officer, MAHESH MISRA, spoke to Raghu Mohan on post-covid developments and the role of mortgage insurance in the days ahead. Edited excerpts:
On delinquency levels, post-covid
It may not be appropriate for me to give the exact delinquency levels, but what I can say is that it has nearly doubled. Our economic slowdown had started 6-9 months before the pandemic set in. We have been analysing moratorium data of nearly 15 lenders. And, we have seen that higher loan-to-value transactions also have higher moratorium percentages. Then (and this counter-intuitive), people with poor credit scores have higher moratorium percentages compared to those who had no credit scores! The moratorium data for May looks very different from that in April.
On the interest shown for mortgage cover
There is lot more interest from staterun banks and non-banking financial companies (NBFCS). The mortgage business is asymmetrical, and the top 5 players have nearly 50 per cent of the market share — State Bank of India, HDFC, ICICI Bank, Axis Bank, and LIC Housing Finance (LICHF). We have partnerships with all five, but the most active ones are with LICHF, Axis Bank and ICICI Bank.
On mortgage insurance and securitisation:
One of the big challenges that small HFCS face is liquidity and one of the ways in which we solve this issue is by securitisation. Now, there might not be adequate appetite for their pools (of receivables) because of perceived risk factors. So, we could come in, guarantee a pool, and that could satisfy rating agencies that it is a safer pool to purchase. It is not as prolific as it could have been, but we expect greater opportunity in the next 12 to 18 months in this space.
On embedded moral hazard in recoveries
Assume there are two loans: with mortgage guarantee and without it. If I’m a recovery agent, I may make lesser efforts towards recovering the guaranteed part. We have a very critical component in our claim-payment process where we have to demonstrate that equal recovery efforts have been made in either of the cases. I hope in the guarantee scheme for ~3 trillion loans, this dimension is factored in. It is because they are saying that 75 per cent of the claim will be paid right away and 25 per cent after concluding recovery proceedings. This has to be managed very tightly, as otherwise, over time, the credit culture will worsen.
“HIGHER LOAN-TO-VALUE TRANSACTIONS ALSO HAVE HIGHER MORATORIUM PERCENTAGES. AND PEOPLE WITH POOR CREDIT SCORES HAVE OPTED FOR MORATORIUM COMPARED TO THOSE WHO HAD NO CREDIT SCORES!