An increase in the home loan segment boosted the overall assets under management (AUM) of housing finance companies (HFCs), leading to a 24 per cent growth in the last fiscal. Alongside, non-performing assets (NPAs) of HFCs, too, increased to 1.1 per cent as of March 31, 2018, compared with 0.8 per cent a year back.

While the overall sectoral gross NPA trend has been reasonably steady, some HFCs focusing on the affordable housing segment have shown an above-average increase in delinquencies with gross NPAs at 4 to 5 per cent, Crisil said in a press release today.

“There are two reasons for the fast growth in AUMs – first, the ability of HFCs to tap the massive opportunity in affordable housing, and second the slower credit growth at banks, providing HFCs the room to ramp up faster and continue gaining market share,” Krishnan Sitaraman, Senior Director, CRISIL Ratings, said in a release today.

In the home loan segment, AUM rose 22 per cent last fiscal – a compound annual growth rate of 20 per cent over the past three years. Consequently, the market share of HFCs in the home loan segment has increased by around 100 bps to 43 per cent.

The non-housing segment (loan against property, developer funding, corporate loans, etc) remains the fastest growing segment for HFCs, raking up 30 per cent growth last fiscal. Overall, HFCs are expected to continue doing well, with home loan AUM seen growing at 18 to 20 per cent annually. Housing shortage in the affordable segment, regulatory facilitation, entry of a large number of HFCs with sharp focus on the affordable segment, will be the drivers, it said.

“The uptick in slippages was expected, given the increasing delinquencies in the loans against property segment, sharper focus on low-ticket-size home loans, and increased lending to the self-employed customer segment,” said Rama Patel, Director, Crisil Ratings.

Crisil had highlighted in an earlier report that delinquencies in these segments tend to be higher than in the salaried segment. Profitability of HFCs was stable last fiscal, with return on assets (adjusted for one-time gains) of around 1.9 per cent. However, going forward, the net interest margins could get compressed owing to increase in funding costs and intensifying competition.

Consequently, there could be some pressure on profitability in the coming quarters, particularly in the home loan segment. Control over credit costs and operating expenses will define the profitability of HFCs. Nevertheless, Crisil expects the credit profiles of most HFCs it rates to remain stable, supported by a strong capital position and adequate financial flexibility, the report said

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