Housing finance companies (HFCs) will need additional capital of Rs 18,600-28,600 crore – roughly 30-50% of their current net worth – to be able to achieve a compounded annual growth rate (CAGR) of 20-22% for the next three years, rating agency Icra said in a report on Tuesday.
According to the rating agency’s estimates, the total housing credit outstanding grew around 19% to R12.5 lakh crore during FY16.
Within HFCs, smaller ones registered stronger home loan growth – around 36% year-on-year – driven by new entrants in the sector and increased focus on faster-growing segments such as affordable housing finance.
Larger HFCs (ones with AUMs of more than Rs 450 crore) reported home loan growth of 15%.
Given the fact that credit growth of smaller HFCs is expected to be higher going ahead, they would need additional capital of Rs 10,000-15,500 crore – around 100-150% of their net worth – to be able to register a CAGR of 27-35% for the next three years, Icra said.
Among the faster-growing segments, the affordable housing finance grew at a brisk pace of over 28% to Rs 95,700 crore as on March 31. “Opportunities for growth are high for the segment given the current low penetration levels as well as the government’s thrust on the affordable housing segment,” Karthik Srinivasan, co-head – financial sector ratings at ICRA, said.
Srinivasan, however, said going forward, one can witness increased competition in the affordable housing finance segment with new HFCs and microfinance institutions (MFIs) entering the scene. There could also be additional competition from newly-licensed small finance banks (SFBs), as small-ticket home loans can be a target segment for them.
On the asset quality front, Icra said despite the HFC industry having gross non-performing assets at as low as 0.73% of total loans, the number could rise given the share of relatively riskier segments like affordable housing, non-housing loans, self-employed borrowers increasing in the overall portfolio.
“ICRA believes that asset quality indicators could worsen going forward. Nevertheless, the strong monitoring and control processes, borrowers’ own equity in properties and a large proportion of self-occupied properties are mitigants for concerns on the asset quality to some extent,” the rating agency said.