HFC portfolios are vulnerable owing to rising share of non-housing loans: ICRA

Even when housing loans continue to dominate the loan portfolio of Housing finance companies (HFC)s, the share of housing loans in the overall HFC portfolio has been declining owing to the higher pace of growth of non-housing loans, according to a report by ICRA.

The report covered various portfolio cuts of 28 HFCs, which account for over 75 percent of the overall housing loan portfolio of HFCs as on March 31.

Further, unlike their larger counterparts, the non-housing loan books of small HFCs largely consist of loans against property (LAP), which accounted for 25 percent of the total loan book as on March 31 compared with 14 percent for all HFCs.

As for the new HFCs operating in the affordable segment, the share of home loans at 83 percent as on March 31 is significantly higher than all HFCs.

"Home loan penetration in the affordable segment continues to be high in western India, with Maharashtra alone accounting for half the portfolio of all financiers in the 'affordable' segment taken together, and the top three states, Gujarat and Rajasthan, apart from Maharashtra comprising 64 percent of the total," said Vice President, Financial Sector Ratings, ICRA, Supreeta Nijjar.

Though some of the larger HFCs are able to compete with banks in the salaried home loan segment, most of the HFCs target self-employed customer segments or the affordable housing segment to optimise their yields and also capitalise on the higher growth potential.

Moreover, with the affordable segment and small HFCs growing at a faster pace than the overall HFC industry, ICRA expects the share of the self-employed segment to increase further.

Overall while the ticket sizes for all HFCs was around Rs. 2.4 million as on March 31, HFCs operating in the affordable segment had significantly lower ticket sizes, at Rs. 1 million (Affordable - New) and Rs 1.2 million (Affordable - All).

Nearly 60 percent of the home loan portfolio for all HFCs taken together, were in the Rs. 1-5 million brackets.

"The overall the increase in the share of the portfolio lent at higher fixed obligation to income ratio for small HFCs and the new affordable segment which indicates higher portfolio vulnerability for these players. Moreover, an increase in the share of riskier sub-segments like non-housing loans, self-employed and affordable housing in the overall portfolio of HFCs could impact asset quality indicators of HFCs," added Nijjar.

The increasing number of new entrants in the housing finance market, coupled with the focus of existing players, has increased the competitive intensity in the industry, leading to the dilution in lending norms.