Affordable housing is set to lift off big time, says IMGC CEO Mahesh Misra

The stress is still there, but the worst is behind us, said Misra

Indian Mortgage Guarantee Company (IMGC), the country’s first mortgage guarantee firm, has seen its portfolio cross the Rs 15,000-crore mark. It has on-boarded 23-plus lenders, including State Bank of India, ICICI Bank, Axis Bank, LIC Housing Finance, and HDFC Ltd, which account for more than 60 per cent of the home-loan market. MAHESH MISRA, IMGC’s chief executive officer, spoke with Raghu Mohan about the road ahead. Edited excerpts:

What’s been your experience on the mortgage guarantee front — delinquency, the movement in premiums, settlements?

Towards the second half of last year, we saw delinquencies worsening. Non-performing assets (NPAs), which were less than 1 per cent pre-pandemic, went up to 3.2 per cent in the second half of last year, and have now stabilised at 2.35 per cent. The moratorium on servicing of loans temporarily helped tide over a crisis. The stress is still there, but the worst is behind us. As for premiums, we have not increased them, because when we price the mortgage guarantee premium, it’s for the life of the loan and part of it takes into account adverse economic conditions, or cycles like the pandemic.

In the case of settlements, during the pandemic the courts were closed, which led to certain settlements getting delayed. But in the last six months, we are seeing settlements happening. In certain pockets, lenders are having to take a loss because in addition to defaults, there’s also a softening of property prices. We have a strong skew in favour of large housing finance companies (HFCs) and private banks, and by ticket size, we saw more settlements in under-Rs 3-million loans.

Can’t a general insurance company also offer the same products as IMGC?

What we offer is mortgage guarantee, not mortgage insurance. If you have accident insurance, it will be paid after an accident. IMGC starts providing cash-flow support at the NPA stage. Because the foreclosure process takes time, we step in at the 90-days-past-dues stage and provide cash-flow support by funding the monthly installments. So, the whole mechanism is different from the way an insurance product is structured.

What explains the interest of large private banks in affordable housing in recent times?

It feeds into their overall goal of financial inclusion. This seems to be a space where private banks believe they will be competitive, because they can price their products better than pure-play affordable housing players and gain market share in tier-2 and tier-3 cities, where growth is expected to be higher. Axis Bank has a very successful affordable housing product called “Asha”. We work very closely with them and it helps them enter segments where they were not strong earlier.

HFCs will also build scale in the next year or two. LIC Housing Finance has used mortgage guarantees very effectively to expand its coverage, and they are IMGC’s largest lender partner. Or, look at Piramal’s acquisition of Dewan Housing Finance — they are very committed to carefully growing the affordable housing book and building it to scale. We see some other large HFCs also building an entirely different affordable housing vertical and wanting to grow.

Of late, there’s been a lot of attention on the securitisation of home loans. What’s the progress been on widening this market?

Not much, really. We have not widened our scope in terms of guaranteeing more portfolios. However, what we are seeing now is that after the Reserve Bank of India’s (RBI’s) securitisation report, three-way play has happened — rating agencies, originators and lenders are now trying to see if they can formalise mortgage guarantee.

This is still a work in progress for us, but I believe it is positive for the industry. If this takes off, it will help the ecosystem in two ways — it will provide the smaller HFCs with an additional source of liquidity, while the larger state-run lenders can venture into geographies indirectly in a faster manner.

The National Housing Bank — a subsidiary of the RBI — has equity in IMGC. Since the NHB’s  powers as housing regulator have shifted to the central bank, will this affect the status of its investment in IMGC?

There are two parts to this. The first objective of the RBI in taking over regulation from the NHB was primarily designed to ensure harmonisation of regulations between banks and HFCs. The second was that it would let NHB take on a larger role as “sponsor” of the industry with stepped-up roles. If you see the last two conferences of HFCs’ chief executive officers which NHB organised, it has very actively spoken about using mortgage guarantee, especially in these times. To play the role of a sponsor, they will continue to promote us regarding their equity investment. Gradually, you know it will depend on NHB’s stance on investments in private entities. 

Can you let us in on your last fund-raise?

I don’t want to talk about the amount, but Brookfield-owned Sagen picked up a 31 per cent stake in IMGC. Sagen is the largest private-sector residential mortgage insurer in Canada. They’ve invested in our company because they see an opportunity in the under-penetrated mortgage market. We are making operating profits, which is to say that the fees we collect are more than adequate to meet our expenses. With this investment, we now have adequate capital for the next three to four years.