Home loan defaults decline as credit scores zoom

The global economic headwinds notwithstanding, there is a very low probability of a subprime-like situation developing in India, would Credit Information Bureau of India, or Cibil, have us believe.
The agency that provides credit scores to individual borrowers, most of those who take mortgages from the banks very high credit scores, indicating that they are least likely to default.
The CIBIL TransUnion Score is a three-digit number in the range between 300 and 900 given to borrowers depending on their repayment habits. Customers with scores closer to 900 are the least risky.
To be sure, more than 88% of new home loan borrowers of banks acquired during 2011 had a credit score of 750 or more, the agency said in a recent report.
It is an almost three-fold improvement over 2008 when just under 23% of the bank's home loan customers were the least risky zone.
Understandably, the credit quality of customers significantly improved in the last four years.
But it could also be because banks have also been more diligent in choosing the right customers.
Either way, the revelation is encouraging, especially considering the market is expected to grow 17% in fiscal policy.
According to bankers, there are two types of home loan borrowers: first, those who have a credit history and therefore tracked by credit bureaus, and secondly, they approach a bank for the first time. The latter category of customers do not have a recorded credit history and may provide a more risky part.
"The mix is ​​usually 60:40, where customers are tracked by credit rating agencies generate higher concentration," said Jairam Sridharan, senior vice president (consumer lending), Axis Bank.
"We avoid customers with no bad information on their credit report, make sure we are getting the best borrowers alone. But in case of first-time borrowers, we use our own judgment," says Sridharan, pointing out that for the first time, customers usually new employees and in their early 30s.
According Cibil report was more than a third of the loans sanctioned in 2011 to borrowers less than 35 years, while about 70% were to those under 45th
Public sector banks tend to take a more restrictive approach towards first time borrowers.
"If a customer has no credit history, he still has to meet several requirements before his application is accepted. We tend to prefer our own customers for the first time loans. Therefore, we have some information about their financial position," says Ram Sangapure, general manager (retail), Central Bank of India.
Risk management in banks has improved over the years, while credit bureau data also helped, said Sumit Bali, executive vice-president (consumer), Kotak Mahindra Bank.
Interestingly, the loan mix moving towards higher value loans, indicating that housing prices are rising and so are affordable for borrowers.
"There were also rules that helped," said Bali.


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