Nijjar sees weakening in debt repayment
The Covid-19-induced loss of income is likely to impact the asset quality of Housing Finance Corporations (HFCs) across the retail and wholesale segments.
“Within the housing, the asset quality in the affordable and self-employed segment could worsen more vis-à-vis the salaried segment, which is expected to exhibit more resilience,” Supreeta Nijjar, Vice President Financial Sector Ratings, ICRA.
“However, salary cuts and job losses in certain sectors could lead to some weakening in the debt repayment capability of the borrowers.
The construction finance segment, which was already under pressure due to demand-side issues, was further impacted by labour migration and lockdowns, which will delay project execution, completion and sales, and thus impact the cash flow of this borrower segment,” said Nijjar.
ICRA notes that the overall on-book housing loan portfolio growth of HFCs and non-banking financial companies (NBFCs) reduced significantly to 3% Y-o-Y in FY2020 due to funding constraints for a major part of the fiscal.
Supported by portfolio buyouts, banks grew their housing portfolio at 11% in FY2020 (16% in FY2019). The rating agency estimates the total housing credit at Rs.21.2 lakh crore as on 31 March 2020.
The overall gross non-performing assets (GNPAs; stage 3 assets as per revised Ind-AS June 2018 onwards) increased to 2.4% as on 31 March 2020 (1.6% as on March 31, 2019) with a sharp deterioration across the wholesale loan construction finance segment, given the tight liquidity situation faced by some developers with delayed projects and the reduced fund availability for the developers.
Elaborated Nijjar, “While some clarity is still awaited on the restructuring permitted by the Reserve Bank of India (RBI), the same might be used more for construction finance loans than for retail housing loans. This, in turn, could lead to lower reported stage 3 assets by HFCs by the end of FY2021.”
ICRA expects the GNPAs in the housing segment to increase to 1.8-2.0% in FY2021 from 1.3% as of March 2020 while slippages in the non-housing segment could be higher, leading to overall GNPAs of 3.0-3.5% in FY2021.
While the lifetime losses on secured retail loans such as home loans and loan against property (LAP) are expected to be low, given the underlying collateral and moderate loan-to-value (LTV), a significant downward movement in property prices could lead to reduced collateral covers and hence higher risks for these lenders.
As for the means of funding, the share of commercial paper (CP) borrowings reduced to 4% of the overall borrowings of HFCs as on 31 March 2020 (7% as on 31 March 2019) as they were largely replaced by bank borrowings, which increased to 27% from 24% during this period.
As per ICRA’s estimates, while portfolio growth for HFCs is expected to be muted, they would require Rs.3.8-4.5 lakh crore to meet refinancing requirements and achieve portfolio growth of up to 5%.
Adjusted for the sizeable non-interest income booked by a large HFC, the overall profitability indicators of the industry moderated to 10.6% in FY2020 from 13.7% in FY2019.
This was on account of some compression in the interest spreads and the higher credit provisions due to a deterioration in the asset quality indicators as well as the Covid-19-related provisions made by most lenders.
Going forward, the net interest margins (NIMs) of the HFCs are expected to remain stable as the cost of funds could moderate.
“However, a slowdown in growth is likely to impact the operating expense ratios while the credit costs could remain elevated,” added Nijjar.
ICRA expects the return on assets to remain range bound between 1.0% and 1.2% in FY2021 with the credit costs expected to be 0.8-1% in FY2021 compared to 1.1% last year. #loans #banks #finance #repayments #projects #assets #housing /fiinews.com
