Higher demand could offset competitive pressures for housing finance cos

Can Fin Homes would see credit costs normalize after it took a provision of Rs 40 crore for fraud in Q2FY24 but net profit may fall by 5.0 per cent QoQ to Rs 1,390 crore

The latest Reserve Bank of India (RBI) reports indicate a pickup in credit growth for non-banking financial companies (NBFCs) along with improving profitability. However, the regulator also cautioned NBFCs against excessive reliance on bank funding and risks in unsecured retail loans. The report also highlighted elevated competitive intensity for NBFCs from banks in secured segments such as housing, vehicles and gold loans.

The RBI’s stress-test projections show NBFCs’ non-performing assets (NPAs) should decline further to 3.8 per cent by September 24, according to its baseline scenario. In a high-risk case scenario, NBFCs’ non-performing loans could pick up to 6.3 per cent .

In housing including priority sector housing, NBFC loans have grown 55 per cent Y-o-Y in H1FY24. However in FY23, although NBFC funding for housing finance (HF) grew 39 per cent, banks registered even higher growth at 64 per cent. Moreover, the bulk of NBFC funding for HF comes from banks.

In H2FY24 NBFCs could deliver a wide range of returns with some net interest margin (NIM) compression and earnings growth ranging from 6-39 per cent.  But LIC Housing Finance (expected to register 6 per cent loan growth) could see lower growth among key HF players. NIM compression could range from 40-160 bps Y-o-Y (13-35 bps Q-o-Q) reflecting the higher cost of refinance and rate transmission by banks.

The disbursal run-rate of LICHF is a key monitorable especially given weak credit flows in the last few quarters.

Can Fin Homes would see credit costs normalise after it took a provision of Rs 40 crore for fraud in Q2FY24 but net profit may fall by 5.0 per cent Q-o-Q to Rs 1,390 crore.

The competition between banks and NBFC in the HF space has seen banks gaining market share even as demand rises. Short term housing demand would be keenly watched.  It is crucial that inflation is stable so that there are no further rate hikes, since that could hit demand.  HFCs could see a 6.5 per cent increase in disbursals to Rs 19,100 crore.  HFCs may see asset under management (AUM) growth of 1.9 per cent Q-o-Q and 6.8 per cent Y-o-Y to Rs 3.3 trillion.

Affordable housing players like Aavas, Aptus and Home First are expected to see over 20 per cent loan growth Y-o-Y. However gross Stage 2 (increased credit risk) and Stage 3 loans (credit impaired) are creeping up.  So there could be some concerns on this front.

In LICHF, net interest income (NII) may fall by 5.4 per cent Q-o-Q due to muted loan growth of 1.5 per cent and NIM may decrease by 23bps Q-o-Q to 2.9 per cent due to rise in cost of funds. But GNPAs could see an improvement of 13bps Q-o-Q.

In Aavas, AUM growth may be 4.7 per cent Q-o-Q. NII growth will be lower at 3.5 per cent Q-o-Q and hence NIM could fall by 11bps Q-o-Q. Asset quality may deteriorate by 2bps Q-o-Q with flat credit costs. Earnings would decline by 3.5 per cent assuming margin compression.

In Can Fin Homes loan growth could be 3.6 per cent Q-o-Q while NII increase would be lower at 2.7 per cent. Margins may remain flat at 4 per cent. Gross NPAs may increase by 7bps. Credit costs are expected to normalise as Q2FY24 has elevated provisions.

PNB Housing Finance (PHF) could report 30 per cent YoY growth in disbursements. There may be a 5bps Q-o-Q NIM expansion and also improvement in credit cost and better gross Stage 3 loans for PNBH.

The pace of HF growth may slow and banks are competing more aggressively. But rising mortgage demand could offset concerns.