Credit risk management in housing finance: A study of LIC housing finance in Bihar

Abstract

Credit risk management is a critical component of housing finance, especially in regions like Bihar, where economic variability and regional development present unique challenges. This study focuses on the credit risk management practices of LIC Housing Finance in Bihar, assessing how effectively the organization identifies, evaluates, and mitigates risks associated with lending. The research examines the processes employed by LIC Housing Finance to assess borrower credibility, manage loan portfolios, and minimize the occurrence of non-performing assets (NPAs). The study utilizes both primary data (collected from interviews with company officials and borrowers) and secondary data (such as annual reports and financial disclosures) to understand the operational nuances in Bihar. It highlights the risk factors such as borrower income instability, property value fluctuations, and repayment capacities that influence credit decisions. Additionally, the role of regulatory frameworks and governmental policies in shaping credit risk strategies is explored. The findings suggest that while LIC Housing Finance has adopted robust credit risk management frameworks in Bihar, including stringent underwriting and early detection of delinquencies, regional economic conditions still pose significant challenges. The company’s efforts to improve credit assessment, monitor loans, and enforce collection mechanisms have led to a moderate reduction in NPAs over time, but further enhancements in risk management are necessary to ensure sustainable growth. This study provides insights into the importance of localized credit risk management strategies in housing finance, particularly in emerging markets like Bihar.