Rating agency Icra on Monday said that the total loan book of all housing finance companies (HFCs) in the affordable housing segment, at Rs 1.26 lakh crore, constituted 16% of the total housing finance credit as on June 30, 2017. It added that new HFCs — which have started operations in the last four to five years — constituted around 3% of the overall book. While the overall asset quality indicators for the affordable housing HFCs remained stable, there has been a deterioration in the asset quality of the smaller HFCs with gross NPAs increasing to 3.3% as on March 2017 (2.6% as on March 2016) and further to over 5% in Q1 FY18. This increase, Icra said, can be attributed partly to better portfolio seasoning and partly to slippages on account of the cash shortage following demonetisation. “The borrower segment for these new HFCs includes low to middle income, self-employed and cash salaried borrowers with limited income buffers to absorb shocks. Thus, the portfolio vulnerability is high for these players,” it explained.
Overall, Icra expects gross NPAs for all affordable HFCs to remain around 2.5%-3% over the medium term; though asset quality for the newer players would be weaker. Icra said that since March 2015, 23 new HFCs have got licences and most of them have been focusing on the relatively under-penetrated low-ticket affordable housing and self-employed segments for growth.
Rohit Inamdar, group head, financial sector ratings at Icra, said that the growth in the affordable housing segment continued to be higher than the industry median, primarily supported by a healthy market demand and positive policy interventions. “Though there was some moderation in growth in Q3 FY17 following demonetisation, the impact has been waning,” he said, adding that with increased supply of affordable housing projects and higher buyer affordability owing to the credit linked subsidy scheme (CLSS), the growth in the segment is likely to remain high and its share in the overall pie would continue to increase over the medium term.
The agency also said that the diversity in the borrowing profiles of these HFCs has improved with a higher share of borrowings from debt markets (non-convertible debentures and commercial papers). However, borrowings from banks and NBFCs continue to form a significant proportion of the funding mix for the smaller entities. “With systemic softening of interest rates and an improvement in the credit profile of these entities, the cost of funds declined by over 50-100 basis points (bps) in FY17,” Inamdar said.