Banks in a view to clean up their loan books drop by drop they are unloading their bad home loans to the Asset Reconstruction Company India Ltd (Arcil), the aggregator of distressed industrial assets.
It is not a frightening surge yet, but there are signs of more bad mortgages being passed on to Arcil to an extent that it is expecting of buying as much as Rs 2,500 crore of bad home loans —- or a quarter of its total distressed assets book —- by the end of 2008.
S Khasnobis, managing director and CEO, Arcil, said the company recently bought some more of distressed home loan receivables.
"The total size of our retail home-loan paper would be about Rs 800 crore at present," he said. "This is through Rs 400 crore worth of receivables collected in each of the last two quarters."
He said the ratio of bad home loans in the Arcil portfolio is going to increase, and this business is expected to drive future growth for the company.
Earlier in its recent study, rating agency Crisil had accredited the rising trend of defaults in home loans to increasing competition in the banking sector to capture market share.
Non-performing home loans are currently quite high at around 3.3 per cent, Crisil said.
Khasnobis said defaults on home loans ensue last in an economic unwind, after defaults on credit cards and personal loans.
Crisil said domestic housing finance companies have told it that non-performing home loans have risen in India because of "willing defaulters" and an "emerging population of fraudsters" over the last two years.
"This is a reflection of the industry's aggressive marketing tactics and some inadequacies in appraisal standards and systems," the rating agency said.
Khasnobis said to be profitable in the bothered home loans segment, economies of scale are crucial.
"We are setting up a dedicated team to manage home loan paper. Some people have already been recruited," he said.
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