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Home loans, A cause of Concern: IMGC

The India Mortgage Guarantee Company (IMGC) which is a leading guarantor of home loans at banks and other home loan financers, saw delinquencies in its own account which is almost two times over when compared with the previous one year to June. The home loan departments at various banks have been under stress due to the impact of Covid-19 on the economy and businesses from last year March. Many news reports have shown big numbers of job losses. An article in today's Deccan Herald reported that based on the data from the Centre of Monitoring Indian Economy (CMIE), at least 32 lakh salaried Indians lost their jobs in July 2021 alone. The article further said that if we take the timeline further back and look at the data from July 2019, nearly one crore of salaried employees lost their jobs and have been jobless.

The chief executive of IMGC said that they are paying 3 times the number of claims in June 2021 compared to what they were paying 15 months back in March 2020 (source: The Economic Express, 4th August 2021, Bengaluru City edition page 1,8). This implies that the increase in Non Performing Assets must have also increased quite significantly (When a borrower defaults on repaying the loan, the creditor (banks and financial institutions) declare the borrower's account as an NPA). Once an account becomes a non-performing asset, the guarantor company pays the required instalments to the lender or financial creditor on the borrower's behalf. The Chief executive of IMGC said that the rate of delinquencies has doubled between last June and this year. What would happen in these situations is that, since the job losses are at an all-time high, people who must have a plan on repaying the loans are now rendered jobless. This implies that they are not able to repay the debts which is the meaning of insolvency. The author does not have the data on per cent of individuals who have been adjourned as insolvent but the guess is that it would be higher than the per cent in 2019. In India, insolvency and bankruptcy are considered as a shame (unlike capitalist countries, eg. Donald Trump was bankrupt twice before becoming the POTUS) and because of which the real data on insolvency would not be correct.

Hence, companies like IMGC would tend to guarantee loans that are inherently risky and hence the delinquencies will be higher. The IMGC study said that delinquency levels were higher among people with poor credit scores. Borrowers with more than 80% loan to value ratio have demonstrated elevated stress levels.

IMGC guarantees home loans for 20 lenders, including big market players like SBI, HDFC, and ICICI banks. Although it is a cause of concern, the economy might recover quickly as the lockdowns and restrictions are over in most districts.

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