Liquidity of HFCs
The NFBC crisis has impacted HFCs and their disbursements have been curtailed, says CRISIL study:
Housing finance companies (HFCs) saw a substantial pull down in the growth of their AUM in the second half of FY 2019-20, specifically because of the liquidity challenges that followed the debt default by Infrastructure Leasing & Financial Services (IL&FS) in September 2018. A research study by rating agency CRISIL indicated that with funding access being affected, non-banks, including HFCs, were forced to curtail disbursements and focus instead on conserving liquidity.
States the study: “Fiscal 2019 was a year of 2 contrasting halves. The first half saw stable growth and comfortable access to funding, with AUM growing at an annualized rate of ~21%. However, the second half brought a reversal of sorts with AUM growth plunging to ~10%. The industry AUM stood at Rs 12,400 billion as on 31 March 2019, up 16% yoy.”
CRISIL says among the HFC segments, the distinction between the 2 halves was the sharpest for non-housing loans – primarily developer loans and loans against property (LAP), which comprised a third of the total AUM of HFCs as on 31 March 2019 – that saw growth print around 5% (annualized) in the second half, compared with ~28% in the first. Housing loans held up better, growing at close to 13% (annualized) compared with 18% in the first half.
BANKS ARE GAINERS
This growth slowdown helped banks to gain market share in home loans for the first time in at least 5 years, supported by portfolio buy-outs. They outpaced HFCs in home loans and grew at 19% in fiscal 2019, says CRISIL, adding with banks’ continued focus on retail growth, especially in this segment, and HFCs keen to conserve liquidity, the trend is expected to continue for a few quarters more.
The rating agency foresees a revival in growth for HFCs in the range of 12% to 14% ver fiscals 2020 and 2021, though this would still be lower than levels seen in the past. “This growth will be supported by mid-teens growth for the two largest players, constituting more than 50% of the industry AUM,” it says.
Krishnan Sitaraman, senior director, CRISIL Ratings says access to funding will determine the growth prospects for HFCs. “As of now, lenders and investors seem to be differentiating between HFCs - preferring those with strong parentage and credit profiles and going slow on those with a large wholesale portfolio. This will be reflected in business growth differing for these entities,” he adds.
The study points out that the limited ability to raise funds through commercial papers (CPs) and cautious call by a few players to reduce dependence on short term borrowings led to a decrease in the share of CPs in total on-book borrowings to ~7.5% as on 31 March 2019, down almost 450 bps from ~12% as on 30 September 2018.
SECURITIZATION A WAY OUT
The study says many HFCs resorted to securitization to meet their liquidity requirements. “In fact, the securitization and direct assignment of mortgages more than doubled to ~Rs930 billion in fiscal 2019 from ~Rs 357billion the previous fiscal. External commercial borrowings also gathered pace, albeit in a limited way,” it says.
The sector saw overall gross NPAs grow up to ~1.4%, from 1.1% in fiscal 2018, and the study says 2-year lagged gross NPAs are a better indicator of asset quality in mortgages because of their long tenures. “That number stood at ~2.1% on March 31, 2019, which is around 50 bps higher than that as on March 31, 2018,” it adds.
DEVELOPER FINANCING
The reported NPAs in the developer financing portfolio have been low till now, but they have been primarily supported by long moratorium periods and exits provided by refinance.
Subha Sri Narayanan, director, CRISIL Ratings, says in recent months, with incremental funding towards real estate coming off, asset quality concerns in the developer financing book have increased. “The impact of refinancing slowing down will need to be monitored given that the ability of lenders to recover, in case of default, through liquidation of assets has not been tested in any material way till date,” says she.
CRISIL feels LAP is another segment that remains monitorable, given the rise in delinquencies that have already been witnessed.
LONG TERM PROSPECTS INTACT
CRISIL maintains that while the long-term growth prospects for HFCs remain intact, asset liability maturity management and liquidity conservation would remain front and center for the next few quarters. The regulatory environment is also expected to evolve and it cited the fact that National Housing Bank has recently tightened the permissible leverage levels and capital adequacy ratios for HFCs and further action could be expected from the regulator on the liquidity front with Reserve Bank of India already having issued draft guidelines for non-banking financial companies (NBFCs) on liquidity risk management framework.
However, CRISIL emphasizes that HFCs with strong parentage and those with robust risk management systems and processes will be able to navigate the current environment better.