Thanks to a sharp focus on affordable housing, loans by housing finance companies (HFCs) today are matching the disbursals by banks. Disbursements by the non-banking players between July 2016 and June, 2017, have been on par with those by banks in the mortgage segment. Data from ratings agency Icra shows banks lent close to Rs 93,000 crore in the 12-month period, as much as HFCs and NBFCs lent together. Home loan portfolios of banks have been growing at around 11-13%—the growth slipped to 11.4% y-o-y in October from 12.8% in September—while at HFCs these are clocking a growth of 19-20%, albeit on a smaller base. At the end of June 2017, the housing-loan portfolio of HFCs and NBFCs stood at Rs 5.55 lakh crore while that of banks was Rs 9.07 lakh crore. Clearly, the focus on the affordable segment which is seeing fairly good momentum thanks to the government’s credit-linked subsidy scheme (CLSS), has boosted the loan books of HFCs. Krishnan Sitaraman, senior director at Crisil confirmed that CLSS has helped stoke demand in the affordable housing category, which HFCs have been quick to take advantage of. “In the sub-Rs 25 lakh loan category, the effective interest rate on the EMI is now in many areas lower than the rental yield. So you actually pay less on a loan than if you were staying in rented accommodation. That has also created its own demand,” Sitaraman said.
Earlier this month, the government increased the scope of the CLSS making buyers eligible for interest rate concessions even for purchases of bigger homes. While conceding that the decision to extend the scope of the scheme was a good one, and would benefit the HFCs, they also cautioned this could lead to some pressure on incremental mortgages. “We believe this would increase the quantum of loans that would be eligible under CLSS and is a positive for HFCs,” Nomura wrote in a report. It added, however, that it expected some pressure on incremental mortgages: “the CLSS-linked growth is only offsetting the growth pressure in high-ticket mortgages for now”.
Analysts have noted the higher exposure to affordable housing loans increases the volatility of HFCs’ portfolio, as the customer profile in the affordable housing segment comprises largely self-employed people with irregular cash flows. However, as Sitaraman points out, HFCs have tried to limit this risk with a relatively lower loan-to-value (LTV) ratio. “While for the salaried segment, the LTV could be 75-80%, in the affordable segment the HFCs are looking at a 50-60% LTV, so that the underlying equity of the borrower is there,” he said. An analysis by Credit Suisse shows home loans continue to be the biggest growth engine for overall bank credit—30% of incremental assets in the past three years. As a result, the share of home loans, in the retail credit portfolio has increased compared with three years ago. Despite this. the mortgage segment remains under-penetrated, given that just 6% of families have a home loan.