Photographer: Ruhani Kaur/Bloomberg

Credit To Housing Sector Set To Slow, Cautions ICRA

After reporting strong credit growth in the first half of the current financial year, housing finance companies may witness a slowdown in the second half along with a decline in asset quality, said ratings agency ICRA in a presentation on Thursday.

Housing credit disbursal by Housing Finance Companies (HFCs) and Non Banking Financial Companies (NBFCs) is expected to grow at a pace of 12-14 percent between October 2018 and March 2019, compared to the 17 percent in the first half of the year, said ICRA. This is expected to be accompanied by a rise in non performing assets (NPAs) to around 1.1 to 1.3 percent over the medium term from the current level of 1 percent.

The prognosis of slower growth follows tight liquidity conditions faced by non-bank lenders in the October-December quarter. This forced firms to conserve liquidity and slow fresh loan approvals. While liquidity conditions improved by the end of the quarter, slower growth seems inevitable.

Credit To Housing Sector Set To Slow, Cautions ICRA

Supreeta Nijjar, Vice President and sector head of financial sector ratings, at ICRA said that credit growth for the full financial year is expected to now be in the range of 14 to 16 percent. This could lead to a modest shift in market share towards banks as they buy out portfolios from NBFCs looking to unlock liquidity, Nijjar added.

Commenting on asset quality trends, ICRA said that gross NPAs could rise to around 1.4 to 1.8 percent over the medium term. Within home loans, riskier sub segments including loans to self employed individuals and affordable housing could see higher delinquencies.

Timely availability of incremental funding at competitive rates for meeting repayments and timely collection and recovery efforts from delinquent loans will be key monitorables. 
Supreeta Nijjar, Vice President and Sector Head - Financial Sector Ratings, ICRA

Overall retail credit growth is also expected to moderate.

Retail NBFC credit is expected to expand at 16 to 18 percent in the second half of the financial year, lower than the 25 percent growth seen in the first half. At Rs. 8.3 lakh crore, retail NBFC credit growth in the first half of the financial year was the highest in the last five to six years, said ICRA.

Segments including vehicle financing, business credit and small enterprises will also see slower credit growth.

Credit To Housing Sector Set To Slow, Cautions ICRA

Slower growth and weaker asset quality will also come along with higher cost of funds. Together, this will impact operating profitability of NBFCs.

The cumulative impact of the increase in the cost of funds, strain on business yields, competitive pressures, weaker operating efficiencies because of lower growth and asset quality concerns would impact operating profitability, said A. M. Karthik, vice president sector head for financial sector ratings at ICRA.