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Seizure law to make housing loans cheaper

Parul Gupta in New Delhi | July 04, 2003 11:56 IST

The extension of the Securitisation Act to cover housing finance companies is likely to result in lower interest rates and lower processing fee for customers.

National Housing Bank executive director R V Verma said since foreclosing a property would become easier, the risk perception of housing finance companies was likely to decrease.

This will lead to a larger flow of funds in the sector, even to categories like self-employed and lower income groups who were earlier on the threshold of credit worthiness.

Larger flow of funds and decreased risk perception would result in lower levels of interest rates for borrowers, he added. Verma said the move would also help in securitisation of loans since housing finance companies would have a cleaner portfolio.

He added that housing finance companies would have to use this mechanism in a responsible manner without arbitrariness and with due regard to the interest of borrowers.

More than the ability to bring down the level of non-performing assets in housing finance companies, which are only around 2-3 per cent of the portfolio, the mechanism will act as a deterrent for borrowers to default.

Even the housing finance companies agree. V P Choudhary, managing director, PNB Housing Finance, said this tool in the hands of housing finance companies will send the right message to investors and will help shore the recovery levels from the current 2 per cent to 1 per cent.

"Benefits from this coverage in the form of lesser recovery effort will be passed on to customers in the form of lower interest rates or concessions in the processing fee," he added.

Another official added that the move would result in boosting the overall confidence levels of housing finance companies. As a result, they will become more outgoing and will extend their coverage to riskier segments as well.

Rajiv Sabharwal, chief operating officer, ICICI Home Finance, said the initiative would lead to lower interest rates only after 6-12 months.

He said when the Act comes in place and housing finance companies are able to take over properties without any legal hassles, only then would they make less provisioning for bad assets and the benefits would be passed on to customers in the form of lower interest rates.


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