HFCS may face slowdown in H2 FY19

MUMBAI: HOUSING finance companies (HFCS) may see slowing credit growth in the second half of 2018-19 because of factors such as tight liquidity and intense competition, rating agency Icra said on Thursday.

The subdued credit portfolio growth, Icra said, is in contrast to the favourable period witnessed in the second half of the last financial year.

“The home loan portfolio of housing finance companies has continued its growth trajectory and has grown at a faster pace of 18% y-o-y till 30 September 2018 as compared to the home loan book of banks, which grew at 16% y-o-y,” Icra said.

The non-housing loan portfolio of HFCS grew at 29% y-o-y at the end of Q2 FY19.

Average loan ticket sizes across HFCS was around ₹25 lakh and more than 80% of the home loan portfolio was in the ₹10 lakh-1 crore bracket, which has reported better asset quality performance compared to lower and higher ticket sizes.

Gross non-performing assets (NPAS) ratio as on 30 September 2018 was 1.3% (slightly higher than 1.1% as on 31 March 2018), but tight liquidity and slowdown in growth could impact the asset quality in the non-housing loan segment, Icra cautioned.

“Within the housing loans segment for HFCS, the share of the self-employed segment has increased to 29% as on September 2018.

Though some of the larger HFCS can compete with banks in the salaried home loan segment, most of the HFCS target self-employed customer segments or the affordable housing segment to optimize their yields,” it said.

While the self-employed segment offers good growth potential, the report said, asset quality in this segment is inferior with gross NPA of 1.5% as on Q2 FY19 (1.1% as on 31 March 2018) as compared with the salaried segment’s gross NPA of 0.5% as on Q2 FY19 (0.4% as on 31 March 2018).

“In our opinion, gross NPAS for HFCS in the home loan segment could increase to around 1.1-1.3% over the medium term from the current level of 1%. Moreover, higher gross NPA ratio on the non-housing loan segment could lead to increase in gross NPAS for HFCS to around 1.4-1.8% over the medium term,” said Supreeta Nijjar, vice-president and sector head, financial sector ratings, Icra.

The ability of HFCS to implement timely collection and recovery efforts in respect of the delinquent loans—repossessing the property wherever necessary, and selling the same in a timely manner—will be key, according to Nijjar .