GIC Housing Finance's bad loans spike to 11.4% in Q1, solvency weakens

A sharp rise in bad loans to 11.4 per cent in June 2021 from 7.4 per cent in March 2021 has weakened GIC Housing Finance’s (GIC HF’s) solvency and profitability.
 
With the second wave of Covid-19 coming in April 2021, the country again witnessed a series of lockdowns, which impacted the cash flows of borrowers.
 
Also, the company, which lends predominantly to the salaried class, was unable to collect from borrowers. This led to a sudden rise in slippages and weakening of solvency and profitability metrics.
 
Rating agency ICRA downgraded its rating for long-term bank lines and non-convertible debentures (NCDs) to “AA” from “AA+”.
 
The deterioration in the asset quality would further impact GICHF’s earnings profile, and consequently, its internal capital generation.
 
ICRA said with relatively muted growth expectations, the company would not need growth capital in the short term. Its capital adequacy ratio (CAR) stood at 17.14 per cent as on June 30, 2021, which is above the regulatory requirement of 14 per cent.

Its gearing was relatively high at 8.1 times (8.3 times as on March 31, 2021), though the figure has reduced from 9.3 per cent in March 2020.
 
The company has enough headroom to raise tier II capital as all of the capital is currently in the form of tier I capital.
 
Gross NPAs rose to 11.4 per cent in June 2021 from 5.64 per cent in June 2020. Net NPAs shot up from 3.05 per cent in June 2020 to 7.86 per cent in June 2021. Housing loan book has shrunk in 12 months to Rs 12,045 crore in June 2021 from Rs 12,781 crore a year ago, according to a filing with the BSE.
 
ICRA said the company had strengthened underwriting processes in the last two years. Loans given under the new framework have performed better than the earlier originations and the management has taken steps to recover from stressed accounts. The ultimate losses on these accounts would be low, given the secured nature of these loans.