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Distinctive demand and risk characteristics of residential housing loan market in India

Arindam Bandyopadhyay (National Institute of Bank Management, Pune, India)
Asish Saha (National Institute of Bank Management, Pune, India)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 1 November 2011




The primary objective of the paper is to demonstrate the importance of borrower‐specific characteristics as well as local situation factors in determining the demand prospect as well as the risk of credit loss on residential housing loan repayment behavior in India.


Using 13,487 housing loan accounts (sanctioned from 1993‐2007) data from Banks and Housing Finance Cos (HFCs) in India, this paper attempts to find out the crucial factors that drive demand for housing and its correlation with borrower characteristics using a panel regression method. Next, using logistic regression, housing loan defaults and the major causative factors of the same are examined.


In analyzing the housing demand pattern, some special characteristics of the Indian residential housing market (demographic and social features) and the housing loan facility structure (loan process, loan margin, loan rate, collateral structure etc.), that have contributed to the safety and soundness of the Indian housing market have been deciphered. The empirical results suggest that borrower defaults on housing loan payments is mainly driven by change in the market value of the property vis‐à‐vis the loan amount and EMI to income ratio. A 10 percent decrease in the market value of the property vis‐à‐vis the loan amount raises the odds of default by 1.55 percent. Similarly, a 10 percent increase in EMI to income ratio raises the delinquency chance by 4.50 percent. However, one cannot ignore borrower characteristics like marital status, employment situation, regional locations, city locations, age profile and house preference which otherwise may inhibit the lender to properly assess credit risk in home loan business, as the results show that these parameters also act as default triggers.


This study contributes on the micro side of the housing market in India, since it uses unique and robust loan information data from banks and HFCs. The empirical results obtained in this paper are useful to regulators, policy makers, market players as well as the researchers to understand housing market demand and risk characteristics in an emerging market economy such as India.



Bandyopadhyay, A. and Saha, A. (2011), "Distinctive demand and risk characteristics of residential housing loan market in India", Journal of Economic Studies, Vol. 38 No. 6, pp. 703-724.



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