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Housing finance firms need Rs 3.8-4.5 lakh crore to meet their refinancing obligations in FY21: ICRA

The rating firm said that the net interest margins of the HFCs are expected to remain stable as the cost of funds could moderate going forward.

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Rating firm ICRA said housing finance companies (HFCs) may see a muted portfolio growth and would require Rs 3.8-4.5 lakh crore to meet their refinancing obligations in FY21.

The agency said the coronavirus-induced slowdown present several challenges and may impact housing finance companies.

The growth in the housing credit is anticipated at 5-8 percent in the financial year 2021 due to COVID-19 which is significantly lower than the last three years' CAGR (Compound annual growth rate) of 14 percent, the report assumes.

“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 percent,” it said.

As for the means of funding, the share of commercial paper (CP) borrowings reduced to 4 percent of the overall borrowings of HFCs as on March 31, 2020 (7 percent as on March 31, 2019). They were largely replaced by bank borrowings, which increased to 27 percent from 24 percent during this period.

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The overall gross non-performing assets (GNPAs) of HFCs increased to 2.4 percent as on March 31, 2020 from 1.6 percent as on March 31, 2019.

According to ICRA's vice president (financial sector ratings) Supreeta 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 GNPAs by HFCs by the end of the financial year 2021, she said.

“We expect GNPAs in the housing segment to increase to 1.8-2 percent in FY21 from 1.3 percent as of March 2020 while slippages in the non-housing segment could be higher, leading to overall GNPAs of 3-3.5 percent in FY21,” Nijjar said.

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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, she added.

Going forward, the net interest margins 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, it said.

The agency expects the return on assets to remain range-bound between 1 percent and 1.2 percent in financial year 2021 with the credit costs expected to be 0.8-1 percent in financial year 2021 compared to 1.1 percent last year.

(With inputs from PTI)

 
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first published: Aug 20, 2020 07:52 pm
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