Asset quality pressures would keep the credit costs elevated
Favourable factors, such as healthy demand in housing sector, provide Housing and Finance Companies (HFCs) hope for better growth prospects in FY2022 with an estimated growth rate of 8-10%, says Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA.
He elaborated, “Overall on-book portfolio of HFCs in India is estimated at Rs.11 lakh crore as on 30 June 2021, with exposures across home loans (HLs), loan against property (LAP), construction finance (CF) and lease rental discounting (LRD). The Covid-19-induced disruptions moderated the portfolio growth to 6% in FY2021.
“Nevertheless, despite nil sequential growth in Q1 FY2022, aforementioned favourable factors provide hope for better growth prospects in FY2022 with an estimated growth rate of 8-10%.”
The second wave of the pandemic impacted the disbursements and collection efficiency (CE) of HFCs in Q1 FY2022 after a robust recovery in H2 FY2021. Consequently, HFCs registered nil sequential growth in the on-book portfolio in Q1 FY2022, though the Y-o-Y growth was better than the growth in FY2021 given the low growth in the corresponding quarter last year.
The CE also declined in Q1 FY2022. However, it started bouncing back by the end of June 2021 and improved further in Q2 FY2022.
But ICRA believes that the healthy demand in the industry, increasing level of economic activity and increasing vaccination in the country are expected to result in a steady growth in disbursements and improvement in CE in FY2022.
Sachdeva said, “Notwithstanding the improvement in business in rest of the FY2022, the persisting asset quality pressures would keep the credit costs elevated and consequently the profitability subdued in FY2022. The pre-tax return on average managed assets (PBT%) for FY2022 is likely to remain similar to FY2021 level (1.9-2.0%). Optimistically, if the collection efficiency trends post a steady and healthy revival and if slippages remain contained, then PBT% may also benefit from reversals in provisions.”
From liquidity perspective, the HFCs have been maintaining healthy on-balance sheet liquidity for the last few quarters and have gradually reduced their reliance on short-term funding sources like CP, which has helped improved asset liability mismatches in the near-term buckets. ICRA expects HFCs to maintain healthy liquidity in the near-term given the challenging environment. #economic #banking #investment #projects /fiinews.com
