Housing finance companies to grow at 8-10% in FY22, says report

Housing finance companies (HFCs) are likely to witness a growth of 8-10 per cent in fiscal 2022 helped by rise in economic and higher demand, says a report.

In the first quarter of the current fiscal, HFCs registered nil sequential growth in the on-book portfolio as the second wave of COVID-19 impacted their disbursements and collection efficiency (CE), rating agency Icra Ratings said in a report released on Monday.

However, the collection efficiency started bouncing back by the end of June 2021 and improved further in the second quarter of the financial year 2022.

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, the agency said in the report.

Its vice president and sector head (financial sector ratings) Sachin Sachdeva said the overall on-book portfolio of HFCs in India is estimated at Rs 11 lakh crore as of June 30, 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 per cent 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 per cent, Sachdeva said.

The report said HFCs asset quality metrics weakened quite sharply in Q1 FY2022 because of the localised lockdowns imposed by various states/union territories (UTs) on account of the second wave, which impacted the borrowers' cash flows and hence the collection efficiency.

The jump in overdue was the sharpest in the recent past, as borrower level liquidity got stretched in the absence of loan moratorium, it said.

The gross non-performing assets (GNPAs) of HFCs increased to 3.6 per cent as of June 30, 2021, from 2.9 per cent as on March 31, 2021 (2.3 per cent as on March 31, 2020). Though the asset quality deteriorated across segments, construction finance was the worst hit followed by LAP and HL, the agency said.

It expects a 40-70 basis points increase (net of recoveries and write-offs) in the GNPAs by March 31, 2022, from GNPAs as of March 31, 2021, assuming there are no further COVID-19 induced lockdowns.

Notwithstanding the improvement in business in the rest of FY2022 the persisting asset quality pressures would keep the credit costs elevated and consequently the profitability subdued in FY2022 for HFCs, Sachdeva said.

He expects the pre-tax return on average managed assets (PBT per cent) for FY2022 to likely remain similar to the financial year 2021 level (1.9-2 per cent).