ICRA has retained its portfolio growth estimate for housing finance companies (HFCs) at 8-10 per cent in FY2022 and projected a 9-11 per cent growth for FY2023.
The credit ratings agency, however, increased its estimate of reported Gross Non-Performing Assets (GNPAs) to 3.6-3.8 per cent as on March 31, 2022 compared to earlier estimate of 3.3-3.6 per cent. Thereafter, some recovery is expected in FY2023, with GNPA estimates of 3.2-3.5 per cent as on March 31, 2023
ICRA assessed that asset quality pressures are likely to keep credit costs high and profitability moderate in FY2022, similar to FY2021, but expected to revive to near pre-Covid levels in FY2023.
The agency noted that the second wave of the pandemic impacted disbursements of HFCs in Q1 (April-June) FY2022. However, the same was followed by a sharp recovery in Q2 (July-September) FY2022.
The on-book portfolio of non-banking financial companies-housing finance companies (NBFC-HFC) in India is estimated at ₹11.6 lakh crore as on September 30, 2021 registering a year-on-year (yoy) growth of 9 per cent (7 per cent adjusted) in H1 (April-September) FY2022.
ICRA said, going forward, the growth trend is expected to continue driven by healthy demand in the industry, increasing level of economic activity and increasing vaccination in the country.
There would, however, be downside risk in case of significant disruptions caused by the new wave of infections in Q4 (January-March) FY2022 or future waves, if any.
Further, the measures taken by the regulator to strengthen the structural, regulatory and supervisory framework for the NBFCs, especially the tighter non-performing advances (NPA) recognition/ upgradation norms, could lead to increased focus on internal controls, which can, in turn can also impact sectoral growth
Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, said, “Given the last three years of moderation in growth, the pent-up demand is expected to help the industry witness growth in the portfolio in FY2022 with the trend expected to continue in FY2023 as well.
“However, this would be subject to the impact of the ongoing third wave. Nevertheless, initial trends, as discussed with industry players, indicate limited impact of the third wave on the industry’s operations.”
As for the gross NPAs, the second wave of infections and the prolonged weakness in the operating environment challenged the recovery since Q3 (October-December) FY2021, which led to a decline in collection efficiency (CE) and hence deterioration in the asset quality metrics in Q1 FY2022, ICRA said.
Nevertheless, the industry saw a sharp recovery in CE in Q2 FY2022 and the gross NPAs (GNPAs) reduced by around 50 basis points (bps) in Q2 FY2022.
Restructured portfolio increases
The agency observed that the stress on cash flows of borrowers caused by the pandemic also renewed the demand for restructuring and the industry’s outstanding restructured portfolio increased to around 2.3 per cent (adjusted for repeat restructuring, recoveries and slippages) of assets under management (AUM) as on September 30, 2021 from around 1.1 per cent as on March 31, 2021.
ICRA expects the restructured book to reduce slightly, driven by recoveries and slippages, to around 2.0-2.1 per cent of the AUM by March 31, 2022.
“Though the continuing improvement in CE augurs well for the industry, we expect the asset quality metrics to remain weak in FY2022 given the relatively sticky nature of GNPAs in the sector, expected slippages from the restructured book, the third wave of the pandemic and the impact of tighter regulations regarding upgradation of NPAs,” Sachdeva said.
He observed that optimistically, if the collection efficiency trends post a steady and healthy revival and if slippages remain contained, then HFCs profitability may also benefit from reversals in provisions.