The asset quality of HFCs is expected to deteriorate further due to stress in the builder loan and loan against property segment.
Difficulty in the refinancing of loans and increasing stock of unsold homes may increase the NPAs of Housing Finance Companies (HFCs) in the coming fiscal FY21. The asset quality is expected to deteriorate further due to stress in the builder loan and loan against property segment, according to a report by Brickwork Ratings. The gross non-performing assets ratio for the overall housing finance sector rose over the last three fiscals, with a sudden rise in FY19 after IL&FS fallout. GNPAs in FY19 rose to 1.77 per cent from 1.31 per cent in FY18.
Also, the credit growth of HFCs, which was hovering around 20 per cent till FY18, fell to nearly 10 per cent in the last fiscal and then had a freefall to a mere 2 per cent in the current fiscal, recording the worst hit so far, said the report.
After the IL&FS default, banks and the financial institutions have become more cautious on lending and the most impacted is the real estate sector. As certain HFCs have their large exposure to the realty sector, any impact on the sector will also mean the impact on the loan portfolio of these HFCs.
“As far as Loan against Property (LAP) is concerned, the SME sector is also facing a problem in getting finance and coupled with the weak economy, this is also impacting the loan portfolio of HFCs,” Vydianathan Ramaswamy, Director & Head – Financial Sector Ratings, Brickwork Ratings, told Financial Express Online.
However, with the help of the government’s fiscal measures and new strategies of the HFC, the credit growth may once again rebound to 10 per cent in the near-term. Co-lending with banks, loan securitization, and lower reliance on short-term borrowings are expected to help HFCs revive their credit growth in the coming fiscal, Vydianathan Ramaswamy added.
Meanwhile, experts are also optimistic on the realty sector due to volatility in the stock market and gold prices. “The current circumstances have led to both the stock market and gold prices acting very volatile, which makes real estate the most viable and secure option for investors to invest in. Homebuyers should also consider buying homes now,” Hakim Lakdawala, Group Promoter, Goodwill Developers, told Financial Express Online. Additionally, we are anticipating that FY21 will be a phase of steady recuperation for the sector due to the measures that the government has announced in the past few months, he added.