India's third largest private sector lender Axis Bank on Tuesday launched a home loan product christened as "Empower Home Loan" for self-employed individuals. It offers floating rate of interest to resident Indians. It offers 11% rate of interest.
India's third largest private sector lender Axis Bank on Tuesday launched a home loan product christened as "Empower Home Loan" for self-employed individuals. It offers floating rate of interest to resident Indians.
"We are offering 11% rate of interest in this product," Jairam Sridharan, head-consumer lending & payments at Axis Bank told moneycontrol.com after the bank had issued a press release on the product.
"The higher credit risk is already priced in as salaried people can avail home loans at around 10.25%. We have also identified certain underwriting skills to appraise a self employed customer. We will tap all those geographies wherein self employed individuals are higher in numbers. We aim to grow this portfolio in the broad range of 5 - 25% of our home loan portfolio," he said without detailing those yardsticks for sanctioning loans.
As on December 31, 2012; the bank's home loan portfolio stood at around Rs 30,000 crore out of Rs 48,000 crore retail loans. Currently, it offers a base rate of 10%.
Home loans to self employed individuals of late, assumed significance in light of financial inclusion. However, credit to this segment is considered to be risky in terms defaults as those individuals mostly do not have any fixed income.
According to Sridharan, self employed customers constitute only 1/4th (or 25%) of the entire banks’ home loan portfolios. Self-employed people are the backbone of the India growth story. However, credit availability to this group tends to be limited. In urban area 42% falls under self-employed category, he added.
Axis scheme is also embeded with an option of rewarding customers, which in turn, will help attract more borrowers. Under the scheme, customers with good repayment track record, will get benefits of additional interest rate reduction at the end of second, third and fifth year. Each time, it will 25 bps cut from the existing rate.
Customers can avail a loan of up to Rs 1 crore in tier I and tier II cities and up to Rs 50 lakh in rest of the other cities and villages.
The minimum loan amount is Rs. 10 lakh with a maximum tenure of 15 years subject to the age of borrower not exceeding 65 years at loan maturity. A borrower can avail this scheme for the purpose of purchasing an under-construction or ready possession or resale house. The bank can extend the same credit for buying plots or reconstruction/extension of existing home.
"Informal sector borrowers are growing in numbers and contributing to the economy as well." V Verma, CMD - National Housing Bank (NHB), the regulator for housing finance companies told moneycontrol.com on Monday.
"However, few lenders are comfortable in lending informal sector borrowers. They are people who constitute the large section of the market and expanding. They have the ability to service the loan. Now, if lenders have skills to appraise them. It is what I call innovation," he said.
At 1435 hours, Axis Bank shares were trading at Rs 1,302, down 1% on NSE.
Axis Bank stock price
On November 27, 2015, Axis Bank closed at Rs 470.90, up Rs 5.70, or 1.23 percent. The 52-week high of the share was Rs 655.35 and the 52-week low was Rs 446.00.
The company's trailing 12-month (TTM) EPS was at Rs 33.53 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 14.04. The latest book value of the company is Rs 187.85 per share. At current value, the price-to-book value of the company is 2.51.
READ MORE ON Axis Bank , Empower Home Loan, self-employed individuals, Jairam Sridharan, head-consumer lending , V Verma, National Housing Bank, NHB
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