PSBs explore new route to home loan evaluation
Mumbai, Nov 11, 2024
Synopsis
Some large state-owned banks in India are exploring the possibility of offering home loans to individuals without traditional income proof. This initiative aims to assess borrowers' earnings through alternative methods, such as evaluating QR code transactions for street vendors or estimating the business of roadside eateries based on customer volume and average billing.
Some large state-owned banks have had preliminary discussions to explore the possibility of offering home loans to persons without customary income proof, employer certificate or tax returns. Different from the regular disbursement under ‘affordable housing’ programmes, this proposal would aim at assessing borrowers’ earnings in alternative ways — like considering transaction levels of a street vendor from his QR code credits.
Another way would be estimating the business of a roadside eatery from the number of customers and average billing.
The idea is being pursued at a point when the Cabinet has approved government assistance towards construction of 3 crore houses under the flagship scheme, Pradhan Mantri Awas Yojana (PMAY) 2024. PMAY may include rehabilitation of slum dwellers, credit-linked subsidy plans for economically weaker sections, low- as well as middle-income groups who receive interest subsidy for buying or building houses, and affordable housing through partnerships.
Confirming initial discussions on the subject, a senior banker, however, claimed “it would be incorrect to say public sector banks are being pushed by the government to consider this.”
Such a home loan scheme marketed through thousands of branches of PSU banks may help to ramp up numbers under the centrally-assisted housing programmes that were launched for rural and urban regions in 2016 and 2015, respectively.
However, it would call for banks dealing with a different segment of customers, who are currently primarily catered to by non-banking finance companies (NBFCs), whose loan sanctions have slowed down amid repeated concerns voiced by the Reserve Bank of India over pace of growth. Typically, several nonbanks charge a higher loan interest of 1.5-2 percentage points.
“Loans under affordable housing may be under the central scheme. But for such sanctions, banks look at some documents like income tax returns — even if it is in the lower income brackets — bank statements and bank credit,” said another banker.
“What may be explored now is whether banks could carry out some on-field assessment of borrowers’ income. There are cases where PMAY has run into certain hurdles, such as absence of proper documents, and the provision in some regions allowing transfer of property without the financier knowing about it,” the banker said.
Some bankers feel the industry could suggest the possibility of at least a partial government guarantee for loans where formal documents related to income are not available. The proposal was taken up at a recent meeting of industry body Indian Banks’ Association. “This would require a different approach,” one person aware of developments said. “Even in disbursements where income documents are in place, banks face queries on aspects like the loan-tovalue level. So there has to be a buy-in from the regulator.” (Loan-to-value compares the value of loan to value of assets, with the maximum fixed at 90% by the regulator for loans up to Rs 30 lakh).
A week ago, the Cabinet cleared the PM-Vidyalaxmi scheme to help meritorious students overcome financial constraints in pursuing higher education. Under this scheme, anybody who gets admission in ‘quality higher education institutions’ (based on National Institutional Ranking Framework) will be eligible to get collateral-free, guarantor-free loans from banks and financial institutions to cover the tuition fees and course-related expenses.
[The Economic Times]
