Tag: against 6% in FY21

Housing Finance Companies’ (HFCs) growth is expected to pick up in the rest of FY2022 despite headwinds in the first quarter (Q1) of FY2022, but weak asset quality is likely to keep their profitability subdued, according to ICRA.

The credit rating agency estimated that HFCs’ portfolio is likely to grow by 8-10 per cent in FY2022 against 6 per cent in FY2021.

ICRA expects gross non-performing assets (GNPAs) to improve marginally from June 2021 level (of 3.6 per cent), but to stay elevated and higher by 40-70 basis points as on March 31, 2022, as compared to March 31, 2021 (of 2.9 per cent).

The agency opined that though the portfolio growth is expected to drive an improvement in revenue, the expected elevated credit costs are likely to keep the profitability subdued in FY2022.

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ICRA observed that healthy demand in the industry, increasing level of economic activity and increasing vaccination in the country are expected to result in a steady growth in disbursements and improvement in collection efficiency (CE) in FY2022.

Covid impact

Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, said: “Overall on-book portfolio of HFCs in India is estimated at ₹11.0 lakh crore as on June 30, 2021, with exposures across home loans (HLs), loan against property (LAP), construction finance (CF), and lease rental discounting (LRD).

“The Covid-19-induced disruptions moderated the portfolio growth to 6 per cent in FY2021. Nevertheless, despite nil sequential growth in Q1 FY2022, aforementioned favourable factors provide hope for better growth prospects in FY2022 with an estimated growth rate of 8-10 per cent.”

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The agency noted that HFCs’ asset quality metrics weakened quite sharply in Q1 FY2022 because of the localised lockdowns imposed by various States/Union Territories (UTs) on account of the second wave, which impacted the borrowers’ cash flows and hence the CE.

“The jump in overdues was the sharpest in the recent past, as borrower-level liquidity got stretched in the absence of loan moratorium. The marginal borrowers, therefore, slipped into the NPA (non-performing asset)/overdue category in Q1 FY2022,” ICRA said.

Consequently, the Gross NPAs increased to 3.6 per cent as on June 30, 2021, from 2.9 per cent as on March 31, 2021 (2.3 per cent as on March 31, 2020).

Per the agency’s assessment, though the asset quality deteriorated across segments, CF was worst hit followed by LAP and HL. Thus, entities with high exposure to CF witnessed a higher impact than the industry average.

The headline asset quality numbers are expected to moderate slightly from current level as the trend in the CE continues to remain encouraging.

Nevertheless, ICRA expects a 40-70 basis points (bps) increase (net of recoveries and write-offs) in GNPAs by March 31, 2022, from GNPAs as on March 31, 2021, assuming there are no further Covid-19 induced lockdowns. One basis point is equal to one-hundredth of a percentage point.

Sachdeva said the pre-tax return on average managed assets (profit before tax/PBT per cent) for FY2022 is likely to remain similar to FY2021 level (1.9-2.0 per cent). Optimistically, if the collection efficiency trends post a steady and healthy revival and if slippages remain contained, then PBT per cent may also benefit from reversals in provisions.