Tech can revolutionize priority sector lending in housing: Atul Monga, BASIC Home Loan

Financial institutions have always struggled to achieve their priority sector lending (PSL) targets. Under obligation from the central bank, financial institutions end up fulfilling PSL targets through secondary markets.

The Reserve Bank of India (RBI) defines priority sectors as agriculture, MSME, micro-credit, education, housing, export credit, and weaker sections. Republic caught up with BASIC Home Loan founder & CEO, Atul Monga to understand the trends in the priority sector lending for housing in India, how technology is solving the problem, and what BASIC is doing to ease the burden of Financial Institutions.

1. What have been your 3-5 key observations of the priority sector lending for housing in India, from Consumer, Technology & Lenders perspective?

Financial institutions face challenges in achieving their priority sector targets for housing due to various factors.

Firstly, most lenders have adopted a limited and selective criterion for eligibility, thereby excluding a large group of consumers from credit access. Secondly, the process of acquiring a loan can be rather tedious as there is a lack of uniform submission of offer documents and other information.

Also, inadequate technological infrastructure and a lack of digital connectivity have resulted in operational inefficiencies. Hence there is a need for more cost-effective and timely loan disbursal and servicing solutions.

2. Can you share more about your role in the whole process of priority sector lending for the housing sector? How does it work? How Banks/FIs benefit by working with you?

Affordable housing in India has been neglected by ecosystem players and banks, despite being a mandated priority sector for lending by the RBI. The current technology development in home loans is limited to web aggregators who generate leads without providing fulfillment support, mainly focusing on tier-1 cities.

We recognized the opportunity and leveraged their experience in e-commerce logistics and technology to address the automation and tracking challenges in this sector. Mortgages, especially for affordable housing, remain a largely untapped market with high lending rates ranging from 18% to 25%. However, default rates are low due to the social importance of homes in low to middle-income groups and the NPAs are low at usually <1% for most players.

BASIC aims to simplify and expedite the home loan process for middle- and low-income groups through a "Phygital" approach, combining personalized assistance from experienced agents with digital tools.

By offering services that facilitate faster loan processing and reducing manual intervention, BASIC supports banks and financial institutions in meeting their targets while providing better products and transparency to customers.

3. Why do FIs lag in achieving their priority sector targets for the housing sector? What ails them?

Financial institutions (FIs) face challenges in meeting their priority sector targets for housing due to inadequate regulatory guidelines and funding. The absence of clear directives hinders their ability to effectively allocate resources and cater to the housing needs of the priority sector.

Furthermore, lending to the priority housing sector poses risks for FIs, as many borrowers have poor credit histories. This increases the likelihood of defaults, making it challenging for FIs to recover loans in the event of a default.

4. What are the trends you see in this space over the next 2-3 years? Can technology be the disruptor?

We believe that technology has the potential to revolutionize priority sector lending in the housing sector. Through the automation of loan processes and utilization of data analytics, loans can be disbursed efficiently and in a timely manner, while also improving the overall customer experience. Additionally, there is a gradual shift in the industry towards digital solutions for loan marketing and acquisitions.

This transition to digital platforms and technologies facilitates greater accessibility and effectiveness in reaching out to borrowers. By leveraging technology, priority sector lending can be transformed, offering cost-efficient operations and enhanced customer experiences.

5. How can the priority sector lending be transformed for the housing sector? Do you believe the limit for priority sector lending for the housing sector needs to be revised? If yes, what's your argument for it, and how do you think it will help India & consumers?

Transforming priority sector lending in the housing sector requires key initiatives. First, digitalizing processes would allow lenders to access information quickly and accurately. Second, establishing a secure central database would store customer information and enable its accessibility for lenders. Third, introducing innovative financial products with flexible loan terms and non-traditional repayment structures would enhance lending options.

Additionally, improving outreach programs would raise awareness and expand the customer base. Lastly, revising the limit for priority sector lending would make it more accessible, driving increased credit and reducing the cost for the housing sector, thereby benefiting India's economy.

6. Can you share what's the social impact BASIC has created through priority sector lending for housing in India?

BASIC has made a significant positive social impact through its priority sector lending for the housing sector. By providing access to credit for underserved segments of the population, BASIC has enabled individuals and families to fulfill their dream of owning a home.

We have also worked towards reducing the turnaround time for credit approval, ensuring that borrowers can receive timely financial assistance. Moreover, BASIC offers more flexible loan terms, tailoring them to suit the specific needs and financial capabilities of borrowers. Thus, BASIC has empowered customers and improved their standard of living.