Abstract
This study empirically examines the role of various socio -demographic and financial factors that determine borrowers default risk in housing loans. Using the data from the housing loan accounts (sanctioned from 1999-2010) of two public sector banks in Bangalore, the study investigates the repayment pattern of two groups of borrowers: defaulters and non-defaulters and group them into different risk level. The study uses stepwise regression to find the extent of influence of socio demographic and financial factors on default risk. The outcome of the study indicates that the association of financial variables like Net worth, Income, maturity and loan size are more significant on borrower default risk. However, one cannot ignore the sociodemographic variables like age, educational level, Number of dependents and experience in the job which otherwise may inhibit lender to properly assess credit risk in developing the internal score sheets. The outcome of the study shows that these parameters also act as default triggers.
Highlights
Indian economy has emerged as a demand driven rather than a supply constrained economy after the LPG wave
The lenders of credit are leveraging this by offering varieties of products through varied distribution channels to different customer group there by making retail banking synonymous with the mainstream banking
The primary contribution of the research delineated in this study is to demonstrate the importance of borrower specific characteristics in determining the risk of credit default on residential housing loan repayment
Summary
Indian economy has emerged as a demand driven rather than a supply constrained economy after the LPG wave. Speed in risk assessment is of utmost importance to decide to extend credit and to decide upon appropriate pricing. With this context the research attempts to study the repayment behaviour of housing loans of public sector banks in India. The borrowers repayment behaviour is analysed based on the socio- demographic and financial characteristics and the borrowers are discriminated based on the high and low risk class. Identifying these as the focus for research, current study will answer the following questions: 1. Is the repayment pattern of the two groups of borrowers different based on the demographic and financial factors?
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