HFCs', MFIs' borrowing cost may rise over 30bps in FY19:Report

With interest rates cycle reversing, cost of borrowing for housing finance companies (HFCs) and microfinance institutions (MFIs) is likely to increase by over 30 basis points in the current fiscal year, and by another 40-50 basis in FY20, a report said Monday.

The lending rates are also likely to go up, but the pace and intensity of the increase in rates will depend on product competitiveness, existing interest rates, and a company's dominance in the industry, rating agency Crisil said in its report.

"The interest rate trajectory is expected to remain elevated for a while. Players with higher exposure to market borrowings and short-term instruments will see greater impact on their cost of borrowings in the near term," it said.

According to the report, the rates on commercial papers (CPs) and non-convertible debentures (NCDs) have already increased by over 100 bps in the past year or so, even as the one-year marginal cost of funds-based lending rate (MCLR) has risen 30 bps.

HFCs and NBFCs, that have cruised on lower borrowing costs and easy access to finance in the recent years, are set for some hiccups as the interest rate cycle reverses course, the report said.

"Large HFCs (with over Rs 30,000 crore AUM) will likely maintain their net interest margin (NIM) with increase in housing interest rates, relatively higher proportion of floating rate loans, and continued strong growth in the high-margin loan against property and developer loan segments," said Prasad Koparkar, senior director, Crisil.

Large HFCs account for nearly 80 per cent of non-bank housing loan book and have already increased their interest rates by 30-60 basis points since January this year, with a further 10-20 bps increase expected over the next six months, according to the agency.

Currently, more than two-thirds of the overall housing loans of HFCs are floating rate loans, with rate reset being applicable with immediate effect or within six months of an increase at the most.

MFIs too would be largely comfortable as their ability to pass on interest rate hikes and extend short-tenure loans will keep margins stable, the report said.