HFCs to face headwinds amid rising interest rates, says India Ratings

Housing finance companies (HFCs) are in for some headwinds, given the rising interest rates and property prices and the resultant moderation in home affordability, which will lead to a marginal dip in their loan sales growth to 12.3 per cent next fiscal year, says a report. 

India Ratings in a report on Tuesday said these factors, along with rising inflation rate, will impact borrowers cash-flows, which will also hit the asset quality marginally.

The agency expects a marginal uptick in the stressed accounts, which has been visible since early FY23 due to the rising inflation and interest rates on borrower cash flows. 

For the top 12 HFCs, NPAs peaked at 2.9 per cent in FY21, and then marginally impro­ved to 2.8 per cent in FY22. The overall stressed book (defaults and restructured loans) remained around 4 per cent in FY22 and FY21. 

The agency expects GNPA to moderate to 2.5 per cent in FY23 but rise marginally to 2.67 per cent in FY24. However, the impact on the overall credit cost will be minimal and remain at the levels seen in FY23. 

The HFCs could grow 12.3 per cent on-year in FY24, marginally down from 12.6 per cent in FY23. The industry grew 10.4 per cent growth in the previous fiscal. Industry growth will be driven by the affordable segment clipping at 16 per cent, the agency said.

The AUM of parent-supported HFCs has grown at a faster pace of 31 per cent than the overall industry growth rate of 12.4 per cent in the first three quarters of the outgoing fiscal year, it added and maintained its stable outlook on the segment for the next fiscal.

While competitive pressures will remain high for the sector, lenders will look to diversify across non-housing to mitigate margin pressures, it said, adding it expects affordable housing financers to witness continuing strong loan growth, largely due to increasing geographic penetration, increase in ticket size along with additions in customer base due to the increasing sense of home ownership.

Given this, the agency expects the demand seen during the pandemic on account of the increased urge for home ownership and continuation of home upscaling will continue in the medium term, driving growth for lenders in FY24.