Mumbai: Housing finance companies (HFCs) have slowed down their loan disbursements and this can have a spillover impact on both retail home loan borrowers and property developers, said India Ratings and Research.
“The housing finance sector has been facing challenges, which have led to a contraction in spreads, a rise in funding cost and an increased spotlight on their asset-liability mismatches. Such mismatches have resulted in constrained financing from both market-based sources (CPs and NCDs) and banks for many players," the report said.
According to India Ratings, the systemic rise in market borrowings rate has affected the housing loan business and the borrowing cost for some large HFCs could be upwards of banks’ marginal cost of funds-based lending rate (MCLR).
“This has led to the shrinking of margins in mid-to-large ticket housing loans, where banks are highly competitive. Furthermore, the ongoing challenges in the real estate and small and medium enterprise segments (loan against property customers) may lead to HFCs reassessing loan growth plans, thereby putting pressure on their margins," it added.
During FY17 to first half of FY19, to mitigate the margin risk, many HFC players expanded their non-housing books at a significantly higher rate than their pure housing loan books.
The increase, India Ratings said, in the proportion of non-housing loan book could lead to asset quality pressure amid the current slowdown in disbursement to developers.
“In Q3 FY19, housing loan growth moderated to 14% on a year-on-year (y-o-y) basis and to 3.5% on a quarter-on-quarter (q-o-q) basis. The segment has witnessed moderation in growth from the historical compounded annual growth rate (CAGR) of 19% for the last five years. Incrementally, risk perception has increased for low rated HFC lenders, based on the duration of their asset book and funding profiles," it added.
Moreover, loan disbursement in the four quarters ended September 2018 averaged ₹25,000 crore per month for large six HFCs players (based on the preceding four-quarter average). However, following September 2018, per month average disbursement fell to ₹13,500 crore as few large HFCs faced serious challenges.