Abstract
Housing satisfies investment and consumption needs for households - about 11% of Indian households purchase homes through home mortgages loan from Banks and Housing Finance Companies (HFCs). Lending norms by banks and HFCs for housing mortgage loans are largely determined by two factors: Loan-to-value ratio (LTV) and Interest-to-Income (Debt-to-income, or DTI) ratio. From a macro-economic perspective regulations set by the Central Bank, the money supply available in the market and the competitiveness of home loan sector influence the collateralization policies of Banks and HFCs.Using data for one of the largest mortgage providers in India for multiple cities, patterns in LTV and Interest-to-Income ratio are identified over a time period of ten years from 1995 to 2005. Banks have opposing interests in settling LTV and DTI targets, where they balance the competitiveness of expansionary LTV vis-a-vis the risk of overvaluation of collateral. The study expects to analyse whether collateralization requirements of banks and HFC’s change with reference to property prices, and if so, to quantify the direction and magnitude of such change.
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