LTVs could increase by 6-10%
ICRA expects the asset quality of housing finance companies (HFCs) to worsen going forward.
As per its recent report based on the aggregated analysis of its rated HFCs, the GNPAs in the housing segment is estimated to increase to 2.5-3.0% in FY2021 from an estimate of 1.7% as on March 2020 (1.4% as on 31 December 2019), whereas those in the non-housing segment could be higher, leading to overall GNPAs of 3.0-4.5% by the end of FY2021 from estimated 2.5% as on FY2020.
Around 30% of the HFCs’ portfolio is under the moratorium as on 31 May 2020. Given the likely impact on the cash flows of borrowers, there could be some more slippages from these accounts once the moratorium is lifted.
As for HFCs in the affordable segment, they have a higher share of a portfolio under moratorium owing to the relatively marginal borrower profile, which may have been impacted more during the Covid-19 related lockdown.
Giving more insights, Supreeta Nijjar, Vice President Financial Sector Ratings, said, “While home loans are expected to show higher resilience on the asset quality front vis-à-vis other asset classes owing to their secured nature and majority also being self-occupied, the loss of income for borrowers could lead to an increase in the gross non-performing assets (GNPA%) in the housing loan segment as well.
“The impact on borrowers who have availed moratorium, where the fixed obligation to income ratio (FOIR) is higher than 50%, could be more. Even at stable income levels, FOIRs could increase by 20-30% for recent loans extended at higher interest rates ranging between 14% and 18%.”
Further, the share of the self-employed segment in the housing loan book of housing finance companies (HFCs) increased over the years to 32% as on 31 December 2019 from 25% as on 31 March 2016. This segment was already performing weaker than the salaried segment with the GNPA% in this segment being almost 3 times of the salaried segment as on 31 December 2019, and thus deterioration could be even sharper due to the pandemic.
Further, ICRA notes that the liquidity of repossessed properties could get impacted and lead to an increase in the ultimate losses, especially those that were recently originated and financed at higher loan-to-value (LTV) ratios, in case of a significant correction in the property prices.
For portfolio availing moratorium, the LTVs could increase by 6-10% for recently originated loans extended at higher interest rates ranging between 14% and 18%.
“Nevertheless, the lifetime credit losses for the HFCs could be an interplay of factors such as the duration for the revival of the borrowers’ income levels, borrowers’ emotional attachment to the property, and whether the properties are self-occupied or under construction. However, overall, the lifetime losses might still be the lowest in this asset class,” said Nijjar. fiinews.com
