ICRA has estimated the gross non-performing assets (GNPAs) of housing finance companies (HFCs) for FY21 to be higher by 50-100 basis points compared to FY2020, and will remain elevated in FY22 as well.
HFCs, which were already facing growth moderation and asset quality woes in the wholesale segment, witnessed an even more challenging operating environment in FY21 due to Covid-19-induced disruptions, the credit rating agency said in a report.
Asset quality
ICRA assessed that these HFCs not only witnessed slowdown in disbursements and hence moderation in portfolio growth, but also witnessed increased pressure on asset quality in 9M (April-December) FY21.
However, steady growth in disbursements in the last two quarters, driven by gradual pick-up in demand for housing credit, has provided some hope of incremental growth trajectory.
Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, said: “Given the cash flow stress faced by the borrowers, the overdues of HFCs increased in 9M FY21 as reflected by proforma (assuming no asset classification dispensation as per the Supreme Court’s order) GNPAs of around 2.7 per cent as on December 31, 2020, compared to reported GNPA of 2.4 per cent as on March 31, 2020.
“The asset quality indicators could be further impacted in Q4 (January-March) FY21.”
The report said the on-book portfolio growth moderated for HFCs in 9M FY21 (compared to March 2020) to 4.3 per cent (excluding the portfolio of one large player, which had sizeable write-offs) from portfolio growth of 6 per cent year-on-year (yoy) in FY20.
However, with revival in demand for housing credit in the industry in the last two quarters, most of the HFCs have already reached near pre-Covid level disbursements and are targeting to achieve further higher disbursements in Q4 FY21.
“This is expected to push up the growth rate for FY21 to 6-8 per cent. Thereafter, ICRA estimates the growth of 8-10 per cent for on-book portfolio of HFCs in FY22,” the report said.
Sachdeva noted that notwithstanding the improvement in business in Q3 (October-December) FY21 and Q4 FY21, relatively lower business growth than the earlier years, and asset quality pressures would moderate the profitability for the HFCs in FY21.
Nevertheless, healthy provision cover maintained by most of the entities, is expected to provide cushion and protect the profitability from Covid-related asset quality stress in FY22, he added.
“While HFCs are expected to regain their profitability and growth trajectory in FY22, the rising Covid-19 infections and localised lockdowns remain a concern area. HFC’s ability to maintain the growth momentum and keep slippages under control would be critical for maintaining the credit profile,” he said.