HFCs: Home alone

'The burden of unsold inventory of over half a million housing units in the top 7 cities will worsen due to impact of the pandemic. Business process re-engineering will hold the key to the future'

A  couple of months back when the economy was just gaining momentum, housing finance companies (HFCs) were chalking out plans for meeting the growing demand for home loans. The Covid-19 pandemic has drastically altered this outlook, disrupting the financial sector in its wake.

The government and Reserve Bank of India (RBI) have taken several measures to support and ease cash flow across sectors. The stimulus packages are directed to improve upon private consumption, demand generation and investment which are needed to spur GDP growth.

The three-month moratorium on term loans outstanding as on 1 March 2020, and the interest thereon, is likely to affect the cash flows of HFCs. The tenure of these loans would get extended by three months, whereas the interest payable for three months will become due at the end of the moratorium which can also be amortised over the balance term of loan. However, no penal interest will accrue to them on these delays.

The policy rate cuts by the central bank along with liquidity and credit measures are expected to boost demand for home loans, but the future scenario will depend on the spread and impact of COVID-19, and its consequent effect on economy. Though not many corporate entities are among HFCs’ customers, the impact of the pandemic on most of them is set to affect the latter too. The burden of unsold inventory of over half a million housing units in the top seven cities will worsen due to the impact of the pandemic. The realty sector will be affected on three-fronts – availability of labour, dearth of funding, and lack of demand for housing stock. 

Due to the unpredictability of the pandemic’s impact, every model or process in the operations of a lender calls for a recalibration. In the post-pandemic scenario, predictability on important factors like revenue, profitability and non-performing assets will be challenging given that the continuity of data chain is snapped. Given this uncertainly, HFCs must brace for running a tight ship during the current fiscal in lending as well as liability management.

Over the last few years, lenders have introduced tighter controls over early identification, monitoring, and taking necessary steps to control rising non-performing assets and maintain asset quality. Still ensuring the collection of loans would be a challenge where even livelihoods of HFC customers are disturbed.

HFCs are likely to invest more in technology to face this sort of crisis and offer improved e-solutions in order to reduce disruptions in future. Also, risk management practices across corporates will have to improve to assess situations that potentially threat productivity and jeopardise the services. HFCs need to be future ready with attractive product features, tech-led decision protocols, and seamless integration of systems and processes. In effect, business process re-engineering will hold the key to the future.

Above all, some challenges are likely to emerge for HFCs and their customers after lifting of the lockdown. However, the realty and allied industries will phase out this situation through innovation and improved productivity. After all, the world, including India, has successfully overcome many challenges in the past as well. The intrinsic demand for housing will remain strong in the long run and HFCs will continue to prosper in the coming years.