Crisil Ratings on Tuesday said the third wave of the Covid-19 pandemic could slash as much as 200 basis points (bps) off its base case estimate of 9-11 per cent compound annual growth rate (CAGR) in the assets under management (AUM) of housing finance companies (HFCs) for FY22 and FY23.
However, the growth would still be higher that the average of about 2 per cent over FY20 and FY21.
Further, HFCs AUM growth for FY22 and FY23 will be slower than the broad-based 24 per cent logged between FY11 and FY19, with a near two-fold increase in the number of HFCs over that decade fuelled by easy availability of equity and debt capital.
“Growth this time around will largely stem from players with better credit profiles. Organic consolidation, which started in FY19, will continue,” said the credit rating agency’s statement.
Of the total HFC AUM of ₹13.2-lakh cror as on March 31, 2021, home loans were the largest segment (71 per cent), followed by wholesale loans (18 per cent) and loans against property (LAP; 11 per cent).
Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, said, “Home loans will be the fastest-growing segment as lenders continue to be selective in the non-housing segment (comprising wholesale and LAP loans).
“After relatively low growth in recent years, the home loan segment is expected to clock 12-14 per cent CAGR over fiscals 2022 and 2023. This will be driven by improving sales, better affordability, and a preference for home ownership and larger homes.”
That said, the pandemic’s third wave could shave off 100-200 bps of this growth depending on its spread, intensity and duration, he added.
The agency assessed that with this pick-up among HFCs, the market share gain by banks in home loans will hit a speed breaker. Banks had gained a 300 basis points (bps) share over the three years from 58 per cent in FY19 to 61 per cent in FY21.
Crisil expects the non-housing loan segment to continue witnessing subdued growth.
Shift to housing loans
Between FY11 and FY19, non-housing loans grew at a faster pace (of about 27 per cent CAGR) when compared with housing loans.
However, a default in debt servicing by a large infrastructure financing conglomerate in September 2018 and the consequent skewed funding environment triggered a shift in strategy among HFCs, the agency said.
Even now, growth in non-housing loans is expected to be low at 2-3 per cent and their share in HFC AUM is likely to shrink, as per Crisil’s estimates.
Within non-housing loans, while LAP growth has tapered, wholesale loans ― comprising real estate finance and corporate loans ― de-grew about 2 per cent in FY21 due to a steep fall in disbursements and sell-down of these loans by some lenders.
Affordable housing to jump
Among HFCs, Crisil has projected specialised affordable housing financiers (AHFCs) to clock 15-20 per cent CAGR through FY22 and FY23, far outpacing the sectoral average. This will be driven by economic revival and a higher proportion of home loans in the portfolio, with favourable demand dynamics at play.
Subha Sri Narayanan, Director, Crisil Ratings, observed that affordable housing finance is a niche segment, requiring different underwriting and risk management practices than traditional home loans.
While AHFCs’ growth moderated to about 15 per cent and 13 per cent in FY20 and FY21, respectively, from a CAGR of about 40 per cent between FY17 and FY19, it remains higher than that of traditional players, he said.
However, competition in this segment has intensified, as traditional HFCs are increasing disbursements in this segment and AHFCs are expanding their geographical footprint.
Focus on AUM
According to Crisil, an important structural shift seems to be playing out as HFCs reset their business models to focus on AUM growth rather than balance sheet growth — a trend that is true for the overall NBFC sector and not just HFCs.
The agency noted that on the retail side, HFCs — especially mid-sized and emerging ones — are evaluating funding-light business models and entering into co-lending arrangements with other financiers for home loans and LAP, though this is still at a nascent stage.
But for wholesale lending, the fund platform is likely to be the way ahead, as a limited number of HFCs are lending on their own balance sheets in any meaningful way.
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