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Non Banking Finance Companies that are focusing on housing finance are expected to grow 8-10% in FY22, according to a report by Icra Ratings. It said that the growth will be driven by improved housing loan demand.
The report said the collection efficiency of loans, which was affected by the Covid-19 pandemic, rebounded by the end of June 2021. It added that the efficiency is likely to have improved further in the second quarter of fiscal year 2022.
The overall housing finance companies (HFC) credit portfolio is estimated at Rs 11.0 lakh crore as on June 30, 2021, with exposures across HLs, loan against property (LAP), construction finance (CF), and lease rental discounting (LRD). Restrictions imposed due to the pandemic slowed down the portfolio growth to 6% in FY2021.
Asset Quality
The asset quality of HFCs deteriorated due to the challenge posed by the second wave of the pandemic in India during the first quarter. In Q1 FY2022, the gross non-performing assets (GNPAs) increased by around 70 basis points (bps) to 3.6% as on June 30, 2021, from 2.9% registered at the end of March 2021. The report noted
The higher stress in the asset quality is also likely to lead to the need for higher restructuring under the Covid relief framework 2.0 as already witnessed with some increase in the restructured book in Q1 FY2022.
The restructured book increased to 1.4% of assets under management (AUM) at the end of first quarter ended June 2021, from 1.1% of AUM at the end of financial year 2021. Icra forecasts more restructuring to take place in the second quarter of financial year 2022 and the overall restructured book to reach 2.0-2.2% of AUM by the end of March 2022.
Icra in its report maintained a cautious stance and expects the GNPAs to increase by around 40-70 bps by the end of fiscal year 2022 from the GNPA level seen at the end previous financial year. This is likely to keep the credit costs high and, therefore, weigh on HFCs profitability in FY2022.
However, liquidity remains comfortable and additional funding of about Rs 1 lakh crore to Rs 1.2 lakh crore is required in FY2022 to support growth, apart from refinancing existing/maturing lines.
Nevertheless, Icra continues to have a negative outlook on HFCs due to the continued stress on the asset quality, the subsequent impact on profitability, pace of growth compared to pre-Covid period and capitalisation profile.
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Source: Trendlyne. Numbers taken during market hours on November 9, 2021.