Rucha Gaike, 26, a Bengaluru-based software developer, bought her home in 2021. She was the primary applicant for her home loan while her husband’s name was the second applicant. Gaike decided to be the co-borrower to avail tax benefits in the long run.
“My salary was not enough to be the sole borrower. We preferred to take the loan jointly so that both of us could avail the tax benefits. For home loans above Rs 50 lakhs, there are no perks of being a woman borrower as there is no discount. But for the tenure of repayment of 20 years, we could get tax benefits and thus chose to be the co-borrower,” Gaike told The Core.
Gaike and many women like her can front only one loan because of pay parity. While men in similar age brackets can take more than one loan in their names, women borrowers are restricted to only home loans. Banks too are hesitant in disbursing car loans to single working women because of the significant salary gap between male and female borrowers.
Gaike said that she was not financing any other loans in her name since her salary was not adequate for more loans. However, she plans to buy a car in the future.
According to the latest data (as of Dec’22) compiled by the Reserve Bank of India (RBI)-approved CRIF in 2023, apart from gold loans and education loans, the number of women borrowers is highest in the home loan segment in India, while the number of women borrowers for other secured loans like the car loan continues to be low. The share of female borrowers for home loans was 32%, but that for auto loans was just 18%, according to the data.
“To date, we hardly get any single women borrowers for auto loans, that is primarily because there is still a pay gap. Those working women with good pay scales who can afford to take an auto loan do take one. But if we compare with the male counterparts, the number of women who could afford that is low,” an official from the loan department of Bank of Baroda, requesting anonymity. The official explained that this was because the number of working women was still low compared to men. Secondly, among couples, auto loans are usually in the name of the husbands because they meet eligibility criteria and their salaries are also higher in comparison.
Under different sections like Section 80 EEA, individuals (either sole borrowers or co-borrowers) can claim income tax benefits of up to Rs 1.5 lakh on the home loan interests paid. However, borrowers are not eligible for any deductions for having car loans.
Gender Pay Gap Affects Borrowing Behaviour
Vaijayanti Mahabale, 49, a working professional at a public service unit from Mumbai, has a home loan in her name from LIC Housing Finance. She is the sole borrower and also had a car loan that she closed a few years ago. She didn’t face any problems in getting her loans approved as her salary met the eligibility criteria for the two loans.
“I got my first home loan, when I was 26, then I got the car loan while I was in my mid-30s when I was about to complete the repayment of my home loan. Later, a few years ago, I applied for another home loan to buy my second home. But I was always the sole borrower of all these loans. My pay package was good enough to be the sole loan applicant,” Mahabale told The Core.
Banks look at the salaries of borrowers before disbursing secured loans. Having a loan in the name of two borrowers also reduces the risk of loans going bad for banks. But when it comes to loans with single borrowers, women’s salaries put them at a disadvantage.
Women borrowers in India have grown at a compound annual growth rate (CAGR) of 15% over the last five years compared to an 11% CAGR growth for male borrowers, according to data released in 2023 by TransUnion CIBIL, an Indian credit bureau. The share of women borrowers increased from 25% in 2017 to 28% in 2022. But, the share of women in the consumer durable loan segments was just 22% in 2022. Since women in white-collar jobs are still low, the share of women-only borrowers is also significantly low. Especially, for unsecured loans like personal loans. The smaller share of women in loan categories like car loans, personal loans, and consumer durable loans are made up of working women with higher salaries.
“Female retail credit participation trends are downstream of female workforce participation trends. In unsecured lending where the risks to lenders are comparatively higher, lenders insist on a robust income and credit history as a result of which loan-ineligible women may not be able to secure a loan or a credit card. They may need to put up collateral. Even in home loans where women’s participation is seen to be higher, the loan eligibility is not contingent on income, and the EMI (equated monthly instalment) burden is on the male co-borrower,” said Adhil Shetty, CEO, of the financial services website Bankbazaar.com.
According to the World Inequality Report 2022 released in October last year, in India, men earn 82% of the labour income, whereas women earn 18% of it. The gender pay gap and the skewed ratio of men and women in the workforce participation contribute to a lower share of women borrowers in the overall credit system.
“We have a lot of women borrowers who are co-applicants with the members for the home loans. Men also prefer to have women as co-applicants, as home loans are of the longest tenures. However, we still have a very low percentage of women borrowers in other loans like personal loans, auto loans, or consumer durables. Also, there are hardly any independent women borrowers in home loans either,” said an official from Axis Bank, who did not want to be named.
Home loans are the biggest category for banks too as they drive credit growth. “Our credit growth is driven largely by home loans and we have a considerable number of women borrowers for the home loans. Although we don’t have the exact data on how many of them are the primary borrowers, overall there has been a significant share of women for home loans,” said Ashwani Kumar, managing director and chief executive officer of UCO Bank.
For home loans, even if women borrowers have lower salaries, they are eligible to be primary applicants as the banks consider the joint income of both applicants.
“Women are becoming independent and they are growing, still the proportion of female members who are earning well in a corporate professional set-up is catching up with the male counterpart. Men still dominate the white-collar job sector and females in such roles are yet to come closer to the number of males. This also means that the overall borrowings of women will be lower than men. Even for joint borrowers home loans, EMIs are not necessarily from women members,” said Prakash Agarwal, an independent credit analyst and former head of BFSI at India Ratings & Industry.
Savings Over Credit
Apart from the pay gap, another factor that contributes significantly to a lower share of women borrowers in the overall credit system, is their financial behaviour. Among salaried women, 55% cited having sufficient personal savings to meet their financial requirements or high-interest rates and stiff repayment terms as the key reasons for not availing of a loan, according to a study by DBS Bank and ratings agency CRISIL.
Kanika Basu, 53, a working professional based in Delhi, was the primary borrower for her first house a few years ago and had her husband as the co-borrower. The tenure of the loan was 15 years. But Basu said that apart from home loans, she never took any other loans as it could affect her financial discipline.
“In my income, I prefer a home loan because the EMI may be a burden during the loan tenure but it gives me security in the long run. It also gives me financial comfort because I consider it a productive expenditure with the potential for price appreciation. But for other loans, I feel they are non-productive and at times I consider them as frivolous expenses. Most of these loans, except home loans, are not about financial security but the comfort of spending an amount that I don't currently possess,” said Basu.
Women said that they chose to have a home loan despite having a low salary as having a home gave them a sense of security. Male members of a household preferred to have women members as co-borrowers for home loans since it gave women a sense of ownership too.
“With women as the primary borrower, in the case of joint home loan, there is minimal chance of conflict of interest as there is a sense of joint ownership. So the chances of loans going bad are low. Historically, women borrowers have better credit quality. So lenders also prefer having women as primary home loan borrowers. Women hardly will borrow for consumption purposes,” said Sanjay Chaturvedi, CEO/co-founder, of housing loan company Shubham Housing Development Finance.
Though credit information company TransUnion Cibil stopped releasing gender-based delinquency data after 2021, their last data compiled in 2022 showed women had lesser delinquency and better credit quality than men. The 90+ days-past-due consumer-level delinquency rate for women borrowers’ stood at 5.2% across retail credit products compared to that of their male counterparts at 6.9% in 2021.
“Men are comfortable taking consumer loans. But women are more into getting their basic financial security sorted. For both married and unmarried women, buying a home is a priority as they consider it as a financial safeguard,” said Mohini Mahadevia, founder of financial planning company SOLUFIN.