HFCs loan book to grow 8-10% in FY22, stress levels to stay elevated: Icra

While HFCs are expected to regain their profitability and growth trajectory in FY22, rising Covid-19 infections and localised lockdowns remain a concern area

Building on demand revival in late 2020 and early this year, the loan book of Housing Finance Companies (HFC) in India, is expected to grow at 8-10 per cent in Fy22, according to Icra.

The on-book portfolio growth moderated for HFCs in 9M FY2021 (compared to Mar-20) to 4.3 per cent (excluding the portfolio of one large player, which had sizeable write-offs) from portfolio growth of 6 per cent year-on-year in FY2020.

However, with the revival in demand for housing credit in the industry during the past two quarters, most of the HFCs have already reached near pre-Covid level disbursements. They are targeting to achieve further higher disbursements and expected to push up the growth rate for FY2021 to 6-8 per cent, it said.

While HFCs are expected to regain their profitability and growth trajectory in FY2022, the rising Covid-19 infections and localised lockdowns remain a concern area.

Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, Icra, says, given the cash flow stress faced by the borrowers, the overdues of HFCs have increased in 9M FY2021 as reflected by proforma Gross Non-Performing Assets (NPAs) to around 2.7 per cent as on December 31, 2020 as compared to reported GNPA of 2.4 as on March 31, 2020. The asset quality indicators could be further impacted in Q4 FY2021.

Icra estimates the reported GNPAs for FY2021 to be higher by 50-100 basis points, compared to FY2020, and the same to remain elevated in FY2022 as well.

HFC’s ability to maintain the growth momentum and keep slippages under control would be critical for maintaining the credit profile, the agency added.

From a liquidity perspective, the HFCs have been maintaining healthy on-balance sheet liquidity for the last few quarters. They have gradually reduced their reliance on short-term funding sources like CP, which has helped improve asset liability mismatches in the near-term buckets. They are expected to maintain healthy liquidity in the near-term given the challenging environment.

Sachdeva said, notwithstanding the improvement in business in Q3 FY2021 and Q4 FY2021, relatively lower business growth than the earlier years, and asset quality pressures would moderate the profitability for the HFCs in FY2021.

Nevertheless, healthy provision cover maintained by most of the entities is expected to provide cushion and protect the profitability from Covid related asset quality stress in FY2022, ICRA said.