The technology should be and will be better used now onwards by cooperative banks for increasing housing credit flow:
Senior, working bankers from the cooperative banking sector namely, CA I.M. Sethiya, Chairman of Chittorgarh Urban Cooperative Bank, Shantanoo Joshi, Vice Chairman of Akola Urban Cooperative Bank , Vithhal Dhanani, General Manager of Varachha Cooperative Bank, Surat and Jagdish Kashyap, CEO Janata Sahakari Bank, Pune, express their views, based on their practical experience on RBI’s decisions about home loan and they present prospects of home loan scenario of their respective banks and the cooperative banking sector.
Mehul Dani: How do you view RBI permitting UCBs, STCCBs & DCCBs to extend enhanced housing loans to individuals?
I. M. Sethiya: It’s a welcome decision, if RBI is permitting UCBs and others, to extend enhanced housing loans to individuals. Smaller UCBs shall be benefitted more as they face difficulty to extend the credit in housing loans sector due to prudential CRE exposure norms for the bank as a whole and also individual credit exposure limitations.
Shantanoo Joshi: This will facilitate the UCBs to book good business under housing portfolio, wherein high value clients can be added to the books of bank and the assets quality can be maintained.
Vithhal Dhanani: We welcome this move of enhancing limits of housing loans to individuals by RBI. It was much awaited since long. Doubling the monetary limits of housing loans has facilitated coop banks to extend bigger amount to needy borrowers, otherwise they were moving away to PSBs and private sector banks.
Jagdish Kashyap: Enhanced housing loans to individuals will partially level the playing field with other banks and enable UCBs, STCCBs and DCCBs to address enhanced demands for housing loans. Satisfied customers of UCBs, STCCBs and DCCBs can be retained through enhanced limit. These RBI amendments will not only stimulate housing and real estate but also overall economy. The housing & real estate being one of the core sectors, these changes will result in to better employment generation and economic growth.
Do you feel portfolio of housing loan to individuals need to be classified differently? Please explain.
I. M. Sethiya: Housing loans up to a certain limit are already covered under priority sector lending and help in maintaining the priority sector lending goals for longer period, especially beneficial to smaller banks as the risk factor is less as compared to other loans/ advances.
Shantanoo Joshi: Yes, the low value housing loans at present is classified under priority sector lending. The high value housing loans may be considered for classification under priority sector subject to it should be for own residence purpose.
Vithhal Dhanani: I don’t think so.
Jagdish Kashyap: Present risk weight, attributed to housing loan, ranges from 50% to 100% depending upon housing value and loan to value ratio. We request for housing loan portfolios classification not to be treated under ‘CRE-RH’. It is also our recommendation to extend the priority sector lending to housing loans up to Rs5 millions instead Rs3.5 mn presently. We also request and recommend to attribute a lowered risk weight at 50% to housing loan.
How should UCBs, STCCBs & DCCBs draw their business growth strategy to better factor in this regulatory change? What are growth prospects?
I. M. Sethiya: Higher the risk, higher the return on interest. Lower the quantum, lower the risk, and lower the rate, higher the quantum, is the base of any strategy.
Shantanoo Joshi: Our strategy at present is to expand the customer base with portfolio of loan of `2.5 million and below. Housing loans sector is good to increase the customer base. Further, increase in limit of housing loan will be advantageous for expanding the bank book.
Vithhal Dhanani: UCBs generally don’t draw such business growth strategy to better factor in this regulatory changes. The monetary limits for of housing loans to individuals has doubled but the aggregate limits of 10% of total assets of previous year still remains the same. The CAGR of home loans of our bank in last 3 FYs was 12.04% in FY2019-20, 0.93% in FY2020-21 and 9.97% in FY 2021-22. The prospects for its growth in current FY may be 25%, but again due to the constraints of aggregate limits of 10% of total assets of previous year there won’t be much growth. However, it will definitely help retain borrowers.
Jagdish Kashyap: Our Janata Sahakari Bank, a multistate scheduled bank, has enhanced demand for housing loans from existing as well as potential customer. Bank will go for project approval for existing builders / customers. Special drive of market for IT employees (who needs more space for work from home) will be made. More focus is on professionals such as chartered accountants, architects, advocates and technocrats.
How has been home loan NPAs against other sectoral NPAs of coop banks over the years?
Shantanoo Joshi: The chances of slippages of accounts to NPAs in home loan portfolio is less. As the general culture of the society does not permit the borrower to lose the residential house.
Vithhal Dhanani: The home loan NPAs in urban coop banks over the years, are low if compared with other sectoral NPAs. For banks it is most secured loan.
Jagdish Kashyap: Every individual struggles to achieve the dream of having an owned house. Our bank’s experience of home loan becoming NPA is low.
How do you rate risk management practices of coop banks juxtaposed with those of PSBs, private banks and HFCs? What needs to be improved organizationally coop banks, especially for big ticket size home loans?
I. M. Sethiya: We need improvements in the area of risk assessment and risk management. We must focus on assessment of project, assessment of risks, plan and strategy to address the risks.
Shantanoo Joshi: The risk management practice at cooperative banks needs to be improved. Cooperative bank needs experts to evaluate the risk and control tools and establish the practice.
Vithhal Dhanani: In coop banks the risk management practices are little different in comparison to PSBs, private banks and HFCs. Our bank is organizationally capable of handling big ticket size home loans.
Jagdish Kashyap: Structured risk management practices have been introduced by regulators. Adherence to these practices might be initially difficult for cooperative banks, but UCBs have an inherent ability to judge and ascertain their customers. However, urban co-operative banks will make efforts to make appropriate documentation of their risk management. To enhance big ticket portfolio of home loans, cooperative banks have to improve upon enhance due diligence skills, marketing skills, management and mitigation of climate risk, verification about saleability of house and thought about customers repayment ability beyond income documents
How can cooperative banks use technology to increasing housing credit?
I. M. Sethiya: Technology is the key tool of success in this era. Tech helps in many ways to take quick and almost accurate decisions and quick disposal leads to take another decision.
Shantanoo Joshi: The appraisal techniques need to be improved for big ticket housing loans in the cooperative banks. LOS needs to stabilize in the cooperative banks. Cooperative banks need to improve their appraisal techniques. Use of credit management system software, loan operating software etc. needs to be implemented.
Vithhal Dhanani: The loan portfolio of our bank is fully computerized since we have implemented CBS system. We adopt latest technologies and our bank is more advanced in introducing the digitalisation in all areas of banking operations. Thus, technology should be and will be better used by cooperative banks for increasing housing credit flow now onwards.
Jagdish Kashyap: To exploit economy of scale in housing credit flow, co-operative banks need to deploy latest LOS for quick disbursal. With the help of RERA Act, to secure fast legal opinion, banks can make use of technology. To have project approval after verification of the project itself, banks can take help of technology. Sanctions and actual disbursement will be possible with the help of technology within 72 hours from receipt of the proposal.
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