Strong Growth Seen In Low-Cost Home Finance

There's a surge in growth in the affordable housing sector. A new survey shows the long-term growth perspective for affordable housing finance companies remains positive and the segment is likely to see a growth of 12-15 per cent in the next financial year.

As of September 30, 2020, the total portfolio of the new Affordable Housing Finance Companies (AHFCs) in the space stood at Rs 55,061 crore, registering a moderate year-on-year (Y-o-Y) growth of 9 per cent, Icra Ratings said in a report.

According to the agency's Vice President and Head (financial sector ratings), Manushree Saggar, the growth numbers of AHFCs could be much lower at 8-10 per cent in the financial year 2021 due to the delay in home purchases by the borrowers owing to the impact of the pandemic on their earnings and savings.

“However, the long-term growth outlook for the sector remains positive given the largely underserved market, favourable demographic profile, housing shortage, and government support in the form of tax sops and subsidies. We expect that the growth would pick up to 12-15 per cent in FY2022,” Saggar said.

The report said the asset quality indicators for AHFCs registered a marginal improvement with a reported gross NPA per cent of 3.1 per cent as of September 30, 2020, as against 3.6 per cent as of March 31, 2020.

The moderation was supported by the standstill on the bucket movement during March 2020-August 2020 and the adjustment of the EMIs received during the moratorium period against past overdue, it said.

Saggar said the overall reported asset gross NPA per cent could increase to 3.6-3.9 per cent by end of March 2021 from 3.1 per cent as of September 30, 2020, and stay at similar levels in the financial year 2022 assuming growth is in line with the expectations.

Over the long term, however, the ultimate losses to the lenders could be limited, given the secured nature of the loans through the recovery time could get extended further, the report said.

These lenders have strengthened their balance sheets through additional COVID-19-related provisions and higher expected credit loss (ECL) provisions in the financial year 2020 and H1 FY2021, she added.

The rating agency expects the profitability indicators of these HFCs to be lower with return on assets (ROAs) of 2.2-2.4 per cent in the financial year 2021, given the expected impact of the pandemic on new business as well as the asset quality.

Over the long-term, the ability of companies to improve the operating efficiencies and control the credit costs would be imperative to improve the return indicators, Saggar added.