Home truth: Spike in HFC bad loans hobbles PMAY

The government’s Pradhan Mantri Awas Yojana (PMAY) scheme faces its first major hurdle as housing finance companies (HFCs) have begun reporting higher non-performing assets (NPAs) in this loan segment. Of the total ~330 billion loans disbursed solely by the new HFCs, which are mainly engaged in affordable housing segment, the gross NPAs have risen from an aggregate of 1 or 2 per cent to 4.5 per cent as of March 2018, analysts said. Kartik Srinivasan, senior vice-president at rating agency Icra, said, “Over the last 12 months, one is seeing delinquencies slowly build up, with the frequency rising largely on account of the impact of demonetisation and the goods and services tax affecting the underlying selfemployed borrowers.” Traditional HFCs continue to maintain stability in their asset quality. But the proportion of affordable housing loans as a part of their total loan book remains small. For the big and traditional HFCs, until December the trend in delinquencies was worsening but it has stabilised at around 1 to 2 per cent for March 2018, said Supreeta Nijjar, vice-president at Icra. However, two or three relatively large and new HFCs in the affordable segment are skewing the industry numbers towards stress, said Nijjar. For example, Aspire Home Finance, an affordable housing subsidiary of the Motilal Oswal Group, has grown its loan book from ~41.4 billion in 2016-17 to ~48.6 billion in 2017-18, reported higher gross NPAs at 4.5 per cent in fourth quarter (Q4) of 2017-18, against just 0.6 per cent in Q4 of 2016-17. About 57 per cent of the company’s loans goes towards first time flat purchases that qualify for PMAY subvention schemes. Mahindra Home Finance has around ~28 billion in affordable loans as of March 2018, but the gross NPA levels have risen from 9.70 per cent at the end of 2016-17 to 10.50 per cent in FY2018. It is not a geographical issue. It depends on the model chosen by the entity. Some HFCs have been aggressive in their sales and have not lent diligently, and they have not set up a proper collection team,” said Bandaru Ramadasu, assistant general manager at CARE Ratings. While there is a deterioration in the asset quality for some of the new HFCs, some banks and HFCs have approached the finance ministry and the Reserve Bank of India (RBI) to allow them to lend for low-cost housing even when all approvals are not in place. “A majority of the poor lives in the periphery of cities and towns. The documentation and titles of most places are imperfect. Under the banking regulation, we are required that all buildings should be approved,” said Samit Ghosh, managing director of Ujjivan Small Finance Bank.’ The PMAY scheme, which aims to construct 30 million affordable houses across the country, has two separate outlays – Gramin (10 million) and Urban (20 million). Under PMAY, households with an income of between ~600,000 and ~1.8 million can avail of a credit-linked subsidy on their housing loan worth 4 per cent (incomes above ~700,000) or 3 per cent (incomes above ~1.4 million). “A lot of customers are cash-salaried. When there is a bad business cycle, their salary gets affected, and delinquencies rise,” said Ramadasu.