Interest rate hike: Borrowers prefer high EMI over bad loan
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Rate hike: Borrowers prefer high EMIs

Despite increasing fears of a slowdown and rising interest rates, the worst times of foreclosure of loans by home loan borrowers are unlikely to return soon.

  • Mumbai,  December 7, 2011  
  • |  
  • UPDATED   11:58 IST

Despite increasing fears of a slowdown and rising interest rates, the worst times of foreclosure of loans by home loan borrowers are unlikely to return soon.

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Many floating rate borrowers are agreeing to higher equated monthly installments (EMIs) instead to cover higher rates. A similar improved trend is also being noticed in banks' credit card business, too.

By definition, a foreclosure takes place when a borrower is unable to repay a loan and the asset or assets pledged by the borrower as collateral for the loan are surrendered to the bank.

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"Foreclosures are fairly low now compared to 2009, when this trend was rampant in Hyderabad. Now the situation is much better," said Jairam Sridharan, head of consumer lending and payments of the private sector Axis Bank, while announcing launch of PIN (personal identification number) generation system of the bank for mobile banking customers through various modes.


FORECLOSURE BLUES
  • In March and April 2011, many banks faced a peculiar situation where the principal was not coming down in spite of borrowers regularly paying their installments
  • The Hyderabad foreclosure blues in 2009 was a sequel to many Indians working in foreign countries and owning properties in the city, losing their jobs following the subprime and credit crises
  • The Satyam Computer scam also resulted in some more foreclosures, particularly in the wake of its associate company, Maytas Properties, going belly up
  • Credit card-related losses have seen a downward trend from about 25 per cent about two years back to about eight per cent now


"Most of the borrowers are accepting higher EMIs in case their monthly interest accruals are more than their existing EMIs," Sridharan added.

In March and April 2011, many banks faced a peculiar situation where the principal was not coming down in spite of borrowers regularly paying their installments.

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"Many banks, including Axis Bank, had to hike EMIs of floating rate customers since March or April 2011, in the wake of rise in lending rates, particularly where further expansion of loan tenure was not prudent. However, the headroom is not unlimited," Sridharan added.

The Hyderabad foreclosure blues in 2009 was a sequel to many Indians working abroad and owning properties in the city, losing their jobs following the sub-prime and credit crises. The Satyam Computer scam also resulted in some more foreclosures, particularly in the wake of its associate firm, Maytas Properties, going belly up. As if these worries are not enough, agitation for a separate state of Telangana also added to the real estate woes.

Following fast growth for a couple of years, retail real estate growth is taking a breather.

Auto sales too, slid 1.77 per cent in April-October 2011 compared to the previous year. But the credit card business picked up pace, after witnessing slowdown over the last two years.

Credit card-related losses have seen a downward trend from about 25 per cent about two years ago to about eight per cent. Since 2009, many banks, including foreign and private ones have cut their exposure to the credit card business. Despite some shortterm hiccups, Axis Bank sees the long-term growth story for retail lending remaining robust.

According to Axis Bank, nonmetros offer better potential for growth of retail banking business.

As a result, it has embarked on branch expansion to these small towns to spur its future growth.

Courtesy: Mail Today