Housing Finance Companies growth to remain subdued: Care Ratings

Rating agency Care Ratings has stated that the growth in the housing finance companies (HFC) loan book is expected to remain subdued due to the funding challenges and lowered consumption due to slowing GDP growth. Care Ratings noted that, “Most HFCs are looking to conserve their liquidity and correcting asset and liability management (ALM) through sell downs and slowing down disbursements. Further, moderation in the loan-book growth of the non-banks has curtailed the growth of their interest margins.”

It also added, “Overall, the growth in the HFCs is expected to remain under pressure as the effect of the relief-measures made by the government on the liquidity front, are yet to unfold. The slowdown in the real estate sector coupled with higher risk perception of refinancing developers could impact the asset quality of players in the sector.”

Further, HFC profit margins are likely to remain pressured on account of increasing cost of funds and delinquencies. Transmission of increasing funding costs to the borrowers is a key monitorable in the competitive interest rate scenario. Such a development could lead to high prepayments and compel players to reduce the proportion of prime borrower segment, to compensate for the reduction in margin.

Public deposits of HFCs came at a higher cost as compared to banks and hence do not form a major part of their borrowing profile. In FY19 and FY18, five major deposit-accepting HFCs accounted for deposits amounting to 18% of their total borrowings. Hence a reduction in the public deposits may not majorly affect the borrowing profile of HFCs. Instead, HFCs would need to find cost effective ways of raising debt as they operate with thin spreads especially in the prime segment and compete directly with banks, which have an inherent competitive advantage due to their lower borrowing costs.

The liquidity infusion scheme aims to relieve smaller HFCs, whose disbursements had moderated over the last financial year. However, the scheme may not prove to be a major breather for the HFCs on the liquidity front, as the Rs 500 crore limit on the capital available for each HFC may turn to be inadequate.