Tight liquidity leads to slowdown in housing finance companies’ credit growth

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Published: March 26, 2019 2:39:04 AM

The housing loan portfolio growth for HFCs and non-banking finance companies (NBFCs) reduced to 13% y-o-y, from 18% as on December 31, 2018, said Icra.

The tight liquidity faced by some developers where projects are delayed could lead to some stress in the construction finance portfolio of the HFCs

Tight liquidity conditions since September 2018 have pushed housing finance companies (HFCs) to lower disbursements and meet a sizable portion of their funding requirement through the portfolio sell-down route, making banks increase their housing loan portfolio, according to a report by Icra.

The housing loan portfolio growth for HFCs and non-banking finance companies (NBFCs) reduced to 13% y-o-y, from 18% as on December 31, 2018, said Icra. Subsequently, banks increased their portfolio by 17% y-o-y in the same period, from 14%.

Supreeta Nijjar, V-P, Financial Sector Ratings, Icra, said, “As disbursements in Q4FY19 are also expected to be muted for some large HFCs, FY19 housing credit growth is likely to be in the range of 13-15% with the pace of growth of banks being higher than that of the HFCs.” The total housing credit outstanding increased by 16% and stood at a little over Rs 18 lakh crore as on December 31, 2018. “Given the positive long-term prospects for the sector, Icra expects housing credit growth for FY20 to be pegged at 14-16%, provided the liquidity conditions in the market ease out.”

While asset quality indicators remain stable with the gross non-performing assets (NPAs) levels of 1.4% as on December 2018, there could be some pressure on the asset quality as the operating environment remains challenging, according to Icra. “Some of the emerging risk factors which need to be watched out for are home loans extended to borrowers where the underlying projects have been significantly delayed and under-construction properties sold by builders under subvention schemes or buyback/assured return schemes,” said Nijjar.
The gross NPAs in the HFC home loan segment are likely to increase to around 1.1-1.3% over the medium term from the current level of 1.0%, added Nijjar. Also, the tight liquidity faced by some developers where projects are delayed could lead to some stress in the construction finance portfolio of the HFCs, leading to a rise in overall gross NPAs for the HFCs to around 1.4-1.8% over the medium term.

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