Housing finance companies (HFCs) are likely to see a muted portfolio growth and would require Rs 3.8-4.5 lakh crore to meet their refinancing requirements in the current fiscal, says an Icra report.
It said the COVID-19-induced slowdown is likely to impact housing finance companies (HFC) and pose several other challenges.
The pandemic effect is expected to lower the housing credit growth to 5-8 per cent in the financial year 2021, significantly below the last three years' CAGR (Compound annual growth rate) of 14 per cent, the report expects.
"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 per cent," it said.
As for the means of funding, the share of commercial paper (CP) borrowings reduced to 4 per cent of the overall borrowings of HFCs as on March 31, 2020 (7 per cent as on March 31, 2019). They were largely replaced by bank borrowings, which increased to 27 per cent from 24 per cent during this period.
The overall gross non-performing assets (GNPAs) of HFCs increased to 2.4 per cent as on March 31, 2020 from 1.6 per cent 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 per cent in FY21 from 1.3 per cent as of March 2020 while slippages in the non-housing segment could be higher, leading to overall GNPAs of 3-3.5 per cent in FY21," Nijjar said.
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 per cent and 1.2 per cent in financial year 2021 with the credit costs expected to be 0.8-1 per cent in financial year 2021 compared to 1.1 per cent last year.