Banking Frontiers – July 2019

Housing Finance

The NFBC crisis has impacted HFCs and their disbursements have been

curtailed, says CRISIL study:

H

ousing finance companies (HFCs)

saw a substantial pull down in the

growth of their AUM in the second

half of FY 2019-20, specifically because of

the liquidity challenges that followed the

debt default by Infrastructure Leasing &

Financial Services (IL&FS) in September

2018. A research study by rating agency
      CRISIL indicated that with funding access
      being affected, non-banks, including HFCs,
      were forced to curtail disbursements and
      focus instead on conserving liquidity.
      States the study: “Fiscal 2019 was
      a year of 2 contrasting halves. The first
      half saw stable growth and comfortable
      access to funding, with AUM growing at
      an annualized rate of ~21%. However,
      the second half brought a reversal of sorts
      with AUM growth plunging to ~10%. The
      industry AUM stood at Rs 12,400 billion as
      on 31 March 2019, up 16% yoy.”
      CRISIL says among the HFC segments,
      the distinction between the 2 halves was the
      sharpest for non-housing loans – primarily
      developer loans and loans against property
      (LAP), which comprised a third of the total
      AUM of HFCs as on 31 March 2019 – that
      saw growth print around 5% (annualized)
      in the second half, compared with ~28%
      in the first. Housing loans held up better,
      growing at close to 13% (annualized)
      compared with 18% in the first half.

BANKS ARE GAINERS

This growth slowdown helped banks to

gain market share in home loans for the

first time in at least 5 years, supported by

portfolio buy-outs. They outpaced HFCs

in home loans and grew at 19% in fiscal

2019, says CRISIL, adding with banks’

continued focus on retail growth, especially

in this segment, and HFCs keen to conserve

liquidity, the trend is expected to continue

for a few quarters more.

The rating agency foresees a revival

in growth for HFCs in the range of 12%

to 14% ver fiscals 2020 and 2021, though

this would still be lower than levels seen

in the past. “This growth will be supported

by mid-teens growth for the two largest

players, constituting more than 50% of the

industry AUM,” it says.

Krishnan Sitaraman, senior director,

CRISIL Ratings says access to funding

will determine the growth prospects for

HFCs. “As of now, lenders and investors

seem to be differentiating between HFCs

• preferring those with strong parentage
  and credit profiles and going slow on those
  with a large wholesale portfolio. This will
  be reflected in business growth differing for
  these entities,” he adds.
  The study points out that the limited
  ability to raise funds through commercial
  papers (CPs) and cautious call by a few
  players to reduce dependence on short term
  borrowings led to a decrease in the share of
  CPs in total on-book borrowings to ~7.5%
  as on 31 March 2019, down almost 450 bps
  from ~12% as on 30 September 2018.

SECURITIZATION A WAY OUT

The study says many HFCs resorted to

securitization to meet their liquidity

requirements. “In fact, the securitization and

direct assignment of mortgages more than

doubled to ~Rs930 billion in fiscal 2019 from

~Rs 357billion the previous fiscal. External

commercial borrowings also gathered pace,

albeit in a limited way,” it says.

The sector saw overall gross NPAs grow

up to ~1.4%, from 1.1% in fiscal 2018, and

the study says 2-year lagged gross NPAs

are a better indicator of asset quality in

mortgages because of their long tenures.

“That number stood at ~2.1% on March 31,

2019, which is around 50 bps higher than

that as on March 31, 2018,” it adds.

DEVELOPER FINANCING

The reported NPAs in the developer

financing portfolio have been low till now,

but they have been primarily supported

by long moratorium periods and exits

provided by refinance.

Subha Sri Narayanan, director, CRISIL

Ratings, says in recent months, with

incremental funding towards real estate

coming off, asset quality concerns in the

developer financing book have increased.

“The impact of refinancing slowing down will

need to be monitored given that the ability of

lenders to recover, in case of default, through

liquidation of assets has not been tested in

any material way till date,” says she.

CRISIL feels LAP is another segment

that remains monitorable, given the

rise in delinquencies that have already

been witnessed.

LONG TERM PROSPECTS INTACT

CRISIL maintains that while the long-term

growth prospects for HFCs remain intact,

asset liability maturity management and

liquidity conservation would remain front

and center for the next few quarters. The

regulatory environment is also expected to

evolve and it cited the fact that National

Housing Bank has recently tightened the

permissible leverage levels and capital

adequacy ratios for HFCs and further action

could be expected from the regulator on the

liquidity front with Reserve Bank of India

already having issued draft guidelines for

non-banking financial companies (NBFCs)

on liquidity risk management framework.

However, CRISIL emphasizes that

HFCs with strong parentage and those

with robust risk management systems

and processes will be able to navigate the

current environment better.

[email protected]

HFCs face reduced growth in their AUM