ICICI Bank launched the country’s first mortgage guarantee-backed home loan that will allow consumers to increase borrowing by 5-20% and the tenure up to 67 years of age (Banks generally restrict repayment period till 60 yrs). The bank will provide loans high than eligibility criteria for a fee 1-2% which is the insurance premium for the extra loan guarantee provided by India Mortgage Guarantee Corporation (IMGC).

Our view: Growth to slow down considerably in coming years

Middle aged home loan borrowers (40-45 years) generally don’t get loans up to 80% of the agreement value as they have to repay loans by 60 years of age. EMI is higher as tenure is shorter. Slower loan growth in corporate segment / intense competition for home loans among players is forcing banks/HFCs increase tenure. There is no regulatory cap on age / tenure of loans. In FY08, banks/HFCs used to provide loans up to 15 years. The same is increased steadily and some players now offer 30 year mortgage loans. Property prices have increased by 70-100% over last five years.

Strong mortgage loan growth in the last five years was mainly due to steady increasing tenure as well as property prices. In our view, mortgage loans grew by 20-22% in the last five years and out of this, 11-12% of the growth was explained by higher tenure/property prices. Volumes contributed ~10% to growth. With falling property prices (largest contributor to loan growth in the last five years), we think mortgage loan growth will slow down considerably in the coming years hurting HFCs and Banks like Axis, ICICI and SBI.

Source: Sachin Murdeshwar