Third Covid-19 wave may knock-off 1-2% growth in HFC assets: Crisil

Growth would still be higher by about 1-2% over fiscals 2020 and 2021. But it would be slower than the broad-based 24% logged between fiscals 2011 and 2019

The third wave of Covid-19 could shave up to 200 basis points (bps) off from the growth in assets of housing finance companies (HFCs) in the current and next financial year (FY23). Sans the risk from the third wave, under base case, HFCs were to deliver a compounded annual growth rate (CAGR) of 9-11 per cent in FY22 and FY23, according to Crisil Ratings.

Growth would still be higher by about 1-2 per cent on average, over fiscals 2020 and 2021. However, it would be slower than the broad-based 24 per cent logged between fiscals 2011 and 2019. There was a near two-fold increase in the number of HFCs over that decade, fuelled by easy availability of equity and debt capital, Crisil added.

Growth this time around will largely stem from players with better credit profiles. Organic consolidation, which started in fiscal 2019, will continue.

Of the total HFC AUM of Rs 13.2 trillion as on March 31, 2021, home loans were the largest segment (71 per cent), followed by wholesale loans (18 per cent) and loans against property (LAP; 11 per cent).

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, “Home loans will be the fastest-growing segment, as lenders continue to be selective in the non-housing segment (comprising wholesale and LAP loans).”

After relatively low growth in recent years, the home loan segment is expected to clock 12-14 per cent CAGR over fiscals 2022 and 2023. This will be driven by improving sales, better affordability, and a preference for home ownership and larger homes. That said, the pandemic’s third wave could shave off 100-200bps of this growth depending on its spread, intensity and duration, he added.

With this pick-up among HFCs, the market share gain by banks in home loans will hit a speed breaker. Banks had gained a three per cent share over the three years through fiscal 2021.

CRISIL said the non-housing loan segment is expected to continue witnessing subdued growth. Between fiscals 2011 and 2019, non-housing loans grew at a faster pace (about 27 per cent CAGR) compared with housing loans. However, default in debt servicing by a large infrastructure financing conglomerate in September 2018 and the consequent skewed funding environment triggered a shift in strategy among HFCs.

Even now, growth in non-housing loans is expected to be low at two-three per cent and their share in HFC AUM is likely to shrink, it added.