Moderation In Growth, Asset Quality Pressures To Hit Affordable Housing Finance Companies: Icra

housing finance

Moderation in growth and pressures on the asset quality may have an impact on affordable housing finance companies’ (AHFC) near-term performance, Icra said in a note on Wednesday. The COVID pandemic could take a severe toll on Housing Finance Companies borrowers, the note added. As per Icra’s estimates, the total portfolio of the new HFCs in the affordable housing space stood at Rs 52,350 crore as on December 31, 2019, registering a lower year-on-year (y-o-y) growth of 18%, which, although higher than the industry average of 7%, has significantly moderated from the three-year compound annual growth rate (CAGR) of over 35% during FY17-FY19.

The current challenges in the operating environment have impacted the operations of these entities, given the relatively high customer connect required in this business, even as operations are gradually moving towards normalcy. At the same time, the debt servicing ability of borrowers could have been impacted as target borrowers are largely self-employed and middle-to-low-income borrowers.

Manushree Saggar, vice-president, financial sector ratings, Icra, said that while the loan book growth of these entities could be in the range of 16-20% in FY20, the growth numbers for FY21 could be much lower and would depend on how long this situation persists and the time it takes for the companies and end borrowers to recover from the impact.

The segment’s asset quality indicators remained largely stable over the past two quarters, with the gross NPA ratio at 4.1% as on December 31, 2019, even though this is weaker than the industry level of 2.2% and reflects the inherent weakness associated with the segment. However, excluding two players in the segment, the number was lower at 1.6% as of December 31, 2019, which is higher than the gross NPA ratio of 2.1% for all Housing Finance Companies, but comparable to the gross NPA ratio in home loans for all HFCs (1.4%).

This is partly attributable to relatively lower portfolio seasoning and a higher share of home loans in the portfolio of affordable housing finance companies as compared with the larger peers. Icra expects the impact of the pandemic on the livelihood of the end borrowers to be severe, leading to asset quality-related issues for these players. According to estimates, the asset quality indicators of these entities could deteriorate by 50-100% in FY21, though the reported numbers would start showing up only from the results of Q3FY21, Icra said.

The loan-to-value could increase by 6-10 percent for those availing moratorium on loans originated at higher interest rates ranging between 14 – 18 percent.

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