Housing finance cos face asset quality challenges in 2021

MUMBAI: India’s central bank expects greater challenges for housing finance companies (HFCs) in 2021 in the shape of delays in completion of housing projects, cost overruns due to the unavailability of labour, and delayed investments by buyers in the affordable housing sector.The sector may need to factor in large slippages of loan assets and higher provisioning as incomes shrank and jobs were lost due to the pandemic.Mortgage lenders experienced headwinds in the fiscal year gone year due to liquidity stress and constraints on market access after the collapse of DHFL. This led to risk aversion with bank credit to the housing sector decelerating sharply, said the Reserve Bank of India (RBI) report.“To sum up, in 2019-20, generally muted credit demand, DHFL episode and the slowdown in the housing sector led to a sharp deceleration in loans and advances by HFCs. This, in turn, affected their profitability,” the RBI noted in its report.In comparison to other NBFCs, the asset quality of HFCs worsened; gross NPA and net NPA ratio of non-bank lenders stood at 1.4 per cent and 0.8 per cent, respectively, at the end of March 2020.“Given the prevalent high divergence in the effective home loan rates among banks, large HFCs and other players, the housing industry is witnessing accelerated market consolidation amid improved growth and increased activity,” said Rajiv Mehta, analyst, Yes Securities.To be sure, an ICRA estimate suggests that total collections, including advances, overdue and pre-payments are indicating a very significant recovery, although the current collections inclusive of overdue continue to remain below the pre-lockdown levels — in the range of 81 per cent to 95 per cent across asset classes in October 2020.“The delinquencies in softer buckets that had seen a spike in September 2020 following the end of the moratorium period continued to remain high in October 2020, though there has been no material increase in the slippages,” said Abhishek Dafria, vice president, ICRA.Financing requirements for NBFCs and HFCs are expected to increase in the coming fiscal year as disbursements would be closer to the pre-Covid levels. With continued risk aversion in the system, analysts expect this category of lenders to face a liquidity crunch to meet funding requirements.

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