According to ICRA, with some housing finance companies focusing more on riskier products like loans against property and builder loans or leaning more towards the self-employed segment, there may be some stress on their asset quality numbers
Ratings agency, ICRA said although housing finance companies (HFCs) have been able to report good asset quality indicators there may be some stress on their asset quality due to focussing on riskier products.
According to ICRA, an associate of Moody's Investor Service, despite a high interest rate scenario and difficult operating environment, HFCs have been able to report good asset quality indicators with a gross NPA percentage at 0.84% as on 31 December 2013. "However, with some HFCs focusing more on riskier products (like loans against property, or LAP, and builder loans) and/ or leaning more towards the self-employed segment (where income streams can be more volatile) some stress on their asset quality numbers is not unlikely," it said in a report.
According to ICRA's estimates, the total housing credit outstanding in India as on 31 December 2013 was over Rs8.6 lakh crore as against Rs7.5 lakh crore as on 31 March 2013, indicating a growth of 18% (annualised) in the first nine months of the financial year 2013-14 (9M, FY2014). Overall ICRA expects the growth in housing credit to be around at 18-20% in FY2014.
HFCs witnessed a marginal decline in lending spreads in third quarter of FY2014 as compared to the previous quarter on account of some compression in yields. “The yields have been largely impacted due to incremental growth coming from home loans at finer spreads, and lower disbursements to relatively higher yielding non-housing segments like builder loans,” said Vibha Batra, senior vice president, ICRA.
However, according to ICRA, the adverse impact on the HFCs' margins was somewhat mitigated by their improved operating efficiencies resulting in almost stable profitability (ROA of 2.18%) for Q3FY2014. Batra said, "Overall, the decline in net interest margins and some rise in credit provisions could lead to a 15-20 bps reduction in the profitability of HFCs in FY2014. However, despite this, profitability is likely to remain good for HFCs in FY2014, with return on assets (ROA) at 2.0-2.2%, or return on equity (ROE) at 17-19%"
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