Housing finance cos portfolio growth pegged tad higher at 10-12%

ICRA has revised slightly upwards the growth estimate for housing finance companies (HFCs) portfolio to 10-12 per cent for FY2023 from 9-11 per cent earlier, even as it expects their profitability to revive to near pre-Covid level in FY2023.

This revision comes as the rating agency expects the momentum of disbursement growth to continue.

ICRA also expects the reduction in gross non-performing assets (GNPAs) to continue in FY2023 following the reduction of 20 basis points in Q4 FY2022, even as the GNPA estimate has been retained at 2.7-3.0 per cent as of March 31, 2023.

Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, opined that HFCs’ net earnings are expected to improve in FY2023 almost to pre-Covid level on the back of lower credit costs and growth in scale, driving operational efficiencies.

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Further, the existing provision cover maintained by most HFCs would cushion profitability. Keeping credit costs under control would, therefore, be critical for incremental profitability.

Disbursement growth

The on-book portfolio of the non-banking financial companies-housing finance companies (NBFC-HFC) sector grew to ₹12.2 lakh crore as of March 31, 2022, registering 11 per cent growth year-on-year (YoY).

Adjusting for the acquisition of the erstwhile Dewan Housing Finance Ltd’s (DHFL) loan book by Piramal Capital & Housing Finance Limited (PCHFL), the YoY loan growth for the NBFC-HFC sector was 9 per cent.

ICRA said the growth was slightly better than its estimate of 8-10 per cent for FY2022. This was driven by the growth in disbursements in the last three quarters of FY2022, as the second wave of the pandemic had impacted business volumes in Q1 FY2022.

With the momentum in disbursement growth expected to continue, the rating agency, in its recent research report, foresees a higher growth rate for the industry in FY2023.

Sachdeva said: “After witnessing disruptions in business volumes because of the second wave of the pandemic, the industry saw a recovery in disbursements and HFCs’ portfolio growth rate started increasing during the last few quarters.

“This helped the industry witness an improvement in portfolio growth rate in FY2022. Given the buoyancy in disbursements, ICRA has revised its growth estimate to 10-12 per cent for FY2023 (from 9-11 per cent earlier).”

Reduction in GNPAs

The report noted that the industry also saw a reduction in its gross non-performing assets (GNPAs) in Q4 FY2022 after it witnessed an increase in Q3 FY2022.

The agency said tighter regulations (Reserve Bank of India’s notification — Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Clarifications dated November 12, 2021) on the recognition and upgradation of GNPAs led to an increase in GNPAs in Q3 FY2022.

However, with increased recoveries, the industry saw a reduction in GNPAs in Q4 FY2022. It also saw recoveries from the restructured book; and with growth in the assets under management (AUM) the standard restructured book declined to around 1.7 per cent of AUM as on March 31, 2022 (better than ICRA’s estimate of 1.8-1.9 per cent).

“The increased recovery efforts by the HFCs along with the actions taken under the SARFAESI Act helped the industry witness an increase in collections,” Sachdeva said. In addition, the overall improvement in economic activities saw customers returning to clear their dues.

The industry reported a decline in GNPAs by around 20 bps in Q4 FY2022, primarily driven by the decline of around 40 bps in the home loan segment. The loan against property (LAP) segment also saw some recovery, but the construction finance segment continued to witness an increase in GNPAs.

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