High interest rates to push mortgage lenders’ NPAs: Crisil

High interest rates to push mortgage lenders’ NPAs: Crisil

New Delhi: Asset quality of housing finance companies would deteriorate severely over the next six quarters as interest rates go up and the economy cools off, Crisil Research said on Tuesday.

Mortgage lenders, though, will see their profits rise in 2012-13 as teaser loans availed in 2009-10 are reset at a higher rate improving yields and offsetting losses due to rising bad assets, it said.

Crisil expects housing finance companies’ net profit margins in 2012-13 to rise 30 bps though gross non-performing assets are also expected to rise 30 bps to 1.9% by March 2013, closer to 1.97% in 2009-10.

The Reserve Bank of India (RBI) has raised key policy rates a dozen times since March 2010 to tame a stubbornly high inflation and slowed economic growth in the Asia’s third-largest economy that grew 7.7% in the April-June, its weakest pace in six quarters.

In a snap poll by Reuters after the previous mid-quarter policy review by the RBI, when it had raised rates by 25 basis points, economists said they expected the RBI to increase interest rates one more time in 2011.

“Income growth will not be as good as it was last year," said Ajay Srinivasan, head - industry research. He said lower salary growth and higher interest burden will increase the risk for home buyers to fall behind on home loan payments.

Floating interest rate for home loan borrowers has gone up by about 250 bps since April 2010, but has remained stable for those who borrowed under teaser loan scheme, where rates are fixed for initial 2-3 years, Crisil said.

Teaser loans account for a quarter of the housing loan portfolio of 5,10,000 crore as of March 2011, Crisil estimates showed.

For 40% of the floating rate customers, the equated monthly installments have risen, while for others their tenures have been extended or they have part paid, Crisil estimates showed.