Affordable housing segment to remain key growth driver in Indian Mortgage Finance Market, says ICRA

Credit rating agency ICRA on Wednesday estimated that total housing credit outstanding in India slowed down to 16 percent for the 12 months ending December 31, 2016 vis-a-vis 19 percent in FY2016 with the overall housing credit being Rs. 1 3.7 trillion as on December 31, 2016 (Rs. 12.4 trillion as on March 31, 2016).

While HFCs continued to grow at a similar pace as FY2016 levels, banks' pace of growth slowed down to 16 percent for the year ended December 2016, largely because they were operationally tied up in Q3FY2017 on account of demonetisation.

Growth was also impacted with buyers and investors deferring their home purchase decisions in expectation of a decline in real estate prices and subdued demand from the self-employed segment. The extent of bounce back in the borrowers' businesses would be the key determinant for the near to medium term demand from the self-employed segment. Further, reduction in MCLR by various banks could lead to increased competition and balance transfers, especially in the prime salaried segment.

"With focus of the GOI on affordable housing segment including a number of initiatives such as 39 percent higher allocations vis-a-vis FY2017 under the Pradhan Mantri Awas Yojana (PMAY), extension of the Credit Linked Subsidy scheme to loans of value up to Rs. 1.2 million, efforts are being made to address the supply side, demand side and affordability issues and are likely to expand the borrower base. In ICRAs opinion affordable housing segment is likely to grow at a faster pace than industry at over 30 percent over the medium term," said senior vice president and group head financial sector ratings, Rohit Inamdar.

The asset quality indicators continue to remain resilient with the Gross NPAs of 0.9 percent as on December 31, 2016 "Post demonetization, the delinquencies in the affordable housing and self-employed segments reported some increase, owing to their relatively higher share of self employed segment which got more impacted due to demonetisation, from 1.07 percent as on September 2016 to 1.25 percent as on December 31, 2016. Further, if the dispensation were not given the Gross NPA percent would have been higher at 1.50 percent. In ICRA's opinion, there could be some further increase in delinquencies especially in the affordable housing and self-employed segments. Further, liquidity of properties may get impacted post demonetisation given the expected correction in property prices impacting the loss given default. Overall we expect gross NPAs for HFCs to remain range bound between 0.9 percent to 1.3 percent over the medium term," said Rohit Inamdar.

Incremental funding costs for HFCs have come down considerably in the second half of FY2017 with many HFCs raising funds at median rates of 7.5-8 percent.