Credit Growth Of Housing Finance Companies To Be Lower At 9-12% In FY21: ICRA

The credit growth of housing finance companies (HFCs) is likely to be lower at 9 to 12 per cent in FY21, vis-a-vis last three years’ compounded annual growth rate of 16 per cent in the backdrop of the Covid-19 outbreak, according to ICRA.

The credit rating agency opined that people will defer home purchases and home improvement/extension decisions till they are able to achieve stability in income levels/resumption of business activities. ICRA cautioned that asset quality of all segments of housing loans could be impacted, and within housing, the asset quality in the affordable and self-employed segment could worsen, compared to the salaried segment.

The agency expects the Covid-19-related slowdown to have impacted the disbursements of HFCs for the quarter ended March 2020 and, accordingly, has estimated a lower housing credit growth of 11-13 per cent in FY20.

Supreeta Nijjar, Vice-President and Sector Head Financial Sector Ratings, ICRA, said: “We expect the Covid-19-induced slowdown to impact the portfolio growth of housing finance companies (HFCs) further in FY21.”

“ICRA expects GNPAs (gross non-performing assets) in the housing segment to increase to 1.8 to 2.0 per cent by March 2021 from 1.4 per cent as of December 2019, while slippages in the non-housing segment could be higher with GNPAs increasing to 3 to 3.5 per cent in FY21 from 2.1 per cent as on December 31, 2019.”

Further, the liquidity of repossessed properties could get impacted, leading to delays in recoveries or possibly higher losses on the sale of such properties, Nijjar added.

The agency observed that overall GNPA increased to 2.2 per cent as on December 31, 2019 (1.6 per cent as on March 31, 2019) due to a deterioration across HFCs in the wholesale loan construction finance segment.

“This was on account of the tight liquidity faced by some developers with delayed projects and the reduced fund availability for developers. However, going forward, the asset quality of all segments – housing loans, loan against property (LAP) and construction finance – could be impacted,” ICRA said.

Within housing, the agency assessed that the asset quality in the affordable and self-employed segment could worsen more vis-à-vis the salaried segment, which is expected to exhibit more resilience, though some sectors could face salary cuts/job losses, thereby impacting the borrower’s debt-servicing capability.

While the lifetime losses on secured retail loans such as home loans and LAP are expected to be limited, given the underlying collateral and moderate loan-to-value, ICRA opined that a downward movement in property prices could expose lenders to higher levels of credit risk.

The agency felt that the construction finance segment will continue to be impacted by labour migration, which will further delay project execution, completion and sales, and impact the already stretched cash flow of this borrower segment.

While the profitability indicators (Return on Equity) are likely to remain range-bound in FY20 between 13 to 15 per cent, a prolonged slowdown in growth and the Covid-19-related impact on the asset quality, could lead to an increase in the credit costs in FY21, cautioned ICRA. This could lead to a moderation in the profitability indicators for FY21 by around 200-300 basis points, it added.

However, during this period, the capitalisation profile is expected to remain adequate from a regulatory and solvency perspective.