Housing finance companies (HFCs) will need an external capital of around R18,000-28,000 crore in next five years...
Housing finance companies (HFCs) will need an external capital of around R18,000-28,000 crore in next five years to grow at 20-22%, rating agency Icra said in a statement on Thursday.
Icra reached this figure assuming an internal capital generation of 16% and retaining the current capitalisation levels. HFCs have a diversified funding base. Big players in the sector are active more in debt markets while smaller players rely more on bank funding and national housing board (NHB) refinance, it said. According to Icra’s estimates, about 40-45% of the HFC borrowings were at fixed rates, which could pose an interest rate risk for these players in a declining rate scenario.
“However, the risk is somewhat mitigated by the fact that these borrowings are not very long dated (average maturity of around 3-5 years) and have reset clauses, thus, giving the HFCs some flexibility to reset the rates,” it said. According to the rating agency, though mortgage finance reach in India has been increasing consistently, (8.24% as of December 31), they still remain low compared with developed countries.
Icra said that given the limited source of long-term funds to match the tenure of home loans (average maturity of 8-10 years including prepayments), asset liability management continues to remain a challenge for HFCs. “Investor sentiment for the housing sector has improved as reflected in the recent capital infusions to the tune of R1,780 crore in various HFCs in FY15, and they are expected to report gearing levels of 7.5-8 times by March 31, 2015,” Icra said.
Icra explained that to promote growth in the affordable housing segment, the government has relaxed regulations for the affordable houses, such as higher LTVs (such as inclusion of stamp duty charge for calculation of LTV), and lower interest rates (through RHF, UHF), long-term bonds for affordable housing with relaxations on CRR/SLR requirements which could improve the fund flow to the segment.
It also expects that an improvement in the operating environment could lead to an increase in new project launches and some improvement in the pace of under construction projects leading to higher pace of growth in the medium term. “This coupled with a favourable demographic profile could lead to higher 20-22% credit growth for housing FY16 onwards as against 17-19% growth witnessed over the last three years,” Icra said.