While banks have the same eligibility criteria, it can differ in case of NBFCs. They have different criteria for salaried and professionals and it depends on the income of the borrower and other outstanding liabilities
With rising interest rates and liquidity crunch, non-banking financial companies (NBFCs) and housing finance companies (HFCs) have slowed down their lending. Some of them are not disbursing money even for sanctioned loans. The lenders are seeking additional documents like credit card bills, utility bills, investments and income statements for a longer period.
NBFC liquidity crunch
Non-bank lenders are facing a liquidity crunch because of asset-liability mismatches in a rising interest rate environment. In the past, they were relying more on short-term liabilities while making the long-term loans. With banks becoming cautious in lending to NBFCs and HFCs because of the asset-liability mismatches, sourcing funds have become expensive, which has resulted in slowing down of credit growth.
For the past few years, NBFCs were the main players in home loans as banks were saddled with high non-performing assets. They were reaching out with their services to inaccessible areas and were substitutes of banks as the latter faced strict regulatory constraints. Moreover, NBFCs were quicker in decision making and were preferred for home loans up to Rs 30 lakh.
A study done by Care Ratings show the total outstanding borrowings (long-term borrowings, short-term borrowings and current maturity of long-term borrowings) was Rs 16.5 lakh core in FY18, a two times increase from Rs 8.5 lakh crore in FY13. Out of the total borrowings, the highest contribution of 49.4% is of HFCs as they expanded their loan book at around 20% CAGR between FY13 to FY18.
Look for a good deal
In the past, NBFCs were preferred by most individual borrowers because of quick verification, easy documentation and fast disbursements. But things are changing as they are looking for more documents, suspending home loan disbursements and even asking for guarantors with sound financial background.
Look for a good deal as banks and NBFCs follow different parameters on lending. If you have a credit score (Cibil) above 750 it is easier for you to negotiate a loan at a lower interest rates. For those borrowing Rs 30 lakh or above with a credit score of 750, many state-owned and private banks are offering interest rate which is 10 basis points lower than the rates on offer for those with a lower credit score. According to Cibil’s analysis, about 79% of the loans are sanctioned to those who have a CIBIL score of 750 and above as banks prefer disbursing loan to such applicants because of lower chances of default on repayments.
Do ensure that you have a high credit score and check your credit score regularly. If there is any discrepancy in your payment history, report that to the bank and get it rectified immediately. Improving your credit score before you decide to avail the loan will get you a better rate of interest and higher loan amount.
Do your paperwork diligently
Till a few months ago, NBFCs were less stringent on documentation and individuals had a higher higher chance of getting a loan. But now they are scrutinising every document like the way banks do. So, arrange all your required documents and take a check list from the lender. For salaried individuals, the documents required will be proof of identity, proof of residence, age proof, salary slips for six months, bank statements, income tax returns for three years. The same set of documents will be required for the co-borrower. Some lenders will like to see credit card and utility bills.
Self employed professionals will have to submit proof of business, audited financials and income tax returns, bank statements, proof of identity and proof of residence. Always keep your documents in order and if there is any discrepancy, inform the lender. This will not only speed up the process of getting a housing loan, but also reduce chances of rejection.
Evaluate your loan amount eligibility carefully. While banks have more or less the same eligibility criteria, it can differ in case of NBFCs. They have different criteria for salaried and professionals and it depends on the income of the borrower and also the other outstanding liabilities. Many banks specify the age of the customer as a criterion. This is to make sure that the customer can complete repayment of the loan before retirement.