Housing finance companies in the affordable housing space are likely to register a flat growth or a marginal de-growth in business and may also face marginal deterioration in asset quality in FY21.

According to a recent study by ICRA, while the loan book growth of the HFCs in affordable housing segment is likely to be in the range of 16-20 per cent in FY20 as the Covid-19-related lockdown impacted business only during the last two weeks of March, however, the growth numbers for FY21 could be much lower. The de-growth would depend on how long the current situation persists and the time it takes for the companies and end borrowers to recover from the impact.

The total portfolio of new HFCs in the affordable housing space is estimated to be ₹52,350 crore as on December 31, 2019, registering a year-on-year growth of 18 per cent. Though this is higher than the industry average of 7 per cent, the growth has significantly moderated from the 3-year CAGR of over 35 per cent during FY17 to FY19, the ICRA report said.

““Overall, the profitability of these HFCs would remain largely stable in FY20. However, given the expected impact of the pandemic on both new business (cost-to-income ratios could remain elevated) and the asset quality (higher credit costs), the profitability indicators of these entities could decline in FY21,” Manushree Saggar, Vice-President, Financial Sector Ratings, ICRA, said in the report.

Business Outlook

According to Manish Jaiswal, CEO & MD, Magma Housing Finance, disbursals are likely to remain flat during the current year also because of the fact that hardly any disbursements have happened in the first quarter upto May-end.

Magma Housing, which disbursed loans to the tune of ₹1,300 crore in FY20 is expecting to disburse close to ₹1,000-1,100 crore this fiscal.

However, the demand for affordable housing is likely to witness a rise moving forward given the social distancing and work-from-home culture necessitated by the current pandemic.

“Work out of home has become new normal and people who are sharing rooms say in a 1-bhk apartment might want to avail of PMAY and there might not be much of a difference between the rentals they are paying and the home they buy. So that is one segment which will get activated. Similarly migrant labourers and workers who have gone back to their hometown some of them may not come back and they may look for opportunities to either organise their homes by going in for either vertical or horizontal development. The demand for that has already started coming in,” Jaiswal told BusinessLine .

Moratorium and asset quality

It is estimated that housing finance companies operating in the affordable segment are likely to witness asset quality deterioration to the tune of 50-100 basis points in FY21 as the pandemic has severely impacted the livelihood of a majority of the end borrowers in the segment.

Per ICRA estimates, 40-45 per cent of the portfolio of such housing finance companies is currently under moratorium. However, not many of these HFCs have requested a moratorium from their lenders. Thus, their ability to service the debt in a timely manner would depend upon the extent of on-balance sheet liquidity available and their ability to draw down the sanctioned but unutilised bank lines.

Given the pandemic, Reserve Bank of India first allowed a moratorium on term loans from March 1, 2020 to May 31, 2020, which was further extended till August 31, 2020.

According to Deo Shankar Tripathi, MD & CEO, Aadhar Housing Finance, the non-performing assets would have peaked and shot up by 3-5 percentage points by August had the RBI not announced an extension of moratorium. However, with a further leeway of three months, NPAs are likely to remain manageable and might see a spike of around 20-50 basis points.

“I expect from September customers whose cash flows have been impacted due to the pandemic should see things coming back near normalcy. The NPA rise will be only marginal and the collection efficiency should come back to pre Covid levels by September,” Tripathi said.