Home finance companies’ margins may come under pressure this year: CRISIL

The profitability of housing finance companies (HFCs) may come under pressure in the coming quarters of the current fiscal (FY19).

While the profitability of HFCs was stable in the last fiscal, with return on assets (adjusted for one-time gains) of around 1.9 per cent, going forward, the net interest margins could get compressed owing to an increase in funding costs and intensifying competition, according to a report by rating and research firm CRISIL.

The report said that the home loan segment would witness a dent in its margins and, hence, control over credit costs and operating expenses will define the profitability of HFCs.

Nevertheless, CRISIL expects the credit profiles of most of the HFCs it rates to remain stable, supported by strong capital position and adequate financial flexibility.

CRISIL, however, said that the assets under management (AUMs) of HFCs witnessed faster-than-expected growth in the financial year 2017-18 on the back of huge demand arising from the affordable housing segment.

CRISIL analysed the AUMs of about 20 HFCs that grew faster than the rating agency’s expectation of 24 per cent, even as non-performing assets (NPAs) edged up 30 bps and profitability remained stable.

Rise in AUM

The CRISIL analysis shows that in the home loan segment, AUM increased over 22 per cent last fiscal, which translated into a compounded annual growth rate of over 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 more than 43 per cent.

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

The non-housing segment (loan against property, developer funding, corporate loans) remains the fastest-growing segment for HFCs at 30 per cent last fiscal.

Overall, HFCs are expected to perform better with the home loan AUM expected to grow at 18-20 per cent per annum, the report said, adding that the housing shortage in the affordable segment, regulatory facilitation and the entry of a large number of HFCs – with a sharp focus on the affordable segment – will be the drivers.

However, the delinquencies in the asset quality has led to an increase in the gross NPAs of HFCs at 1.1 per cent as on March 31, 2018, compared to 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 NPA at over 4-5 per cent.

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