Even while as housing loans continue to dominate the loan portfolio of housing finance companies (HFC)s, the share of housing loans in the overall HFC portfolio has been declining owing to the higher pace of growth of non-housing loans. This trend has been revealed in an ICRA report covering various portfolio cuts of 28 HFCs, which account for over 75 per cent of the overall housing loan portfolio of HFCs as on March 31, 2017. Further, unlike their larger counterparts, the non-housing loan books of small HFCs largely consists of loans against property (LAP), which accounted for 25 per cent of the total loan book as on March 31, 2017 compared with 14 per cent for all HFCs. As for the new HFCs operating in the affordable segment, the share of home loans at 83 per cent as on March 31, 2017, is significantly higher than all HFCs.
Giving more insights, Supreeta Nijjar, Vice President, Financial Sector Ratings, ICRA, says, “The housing loan portfolios of HFCs remain geographically concentrated with Maharashtra, Delhi-NCR, Tamil Nadu and Karnataka accounting for 61 per cent of the portfolio as on March 31, 2017, driven by the volumes in the mega cities of Mumbai and the metropolitan region, Delhi and surrounding cities of Noida and Gurgaon, Chennai, and Bengaluru, respectively. Home loan penetration in the affordable segment continues to be high in western India, with Maharashtra alone accounting for half the portfolio of all financiers in the ‘affordable’ segment taken together, and the top three states (Gujarat and Rajasthan, apart from Maharashtra) comprising 64 per cent of the total.”
Although some of the larger HFCs are able to compete with banks in the salaried home loan segment, most of the HFCs target self-employed customer segments or the affordable housing segment to optimise their yields and also capitalise on the higher growth potential. Further, with the affordable segment and small HFCs growing at a faster pace than the overall HFC industry, ICRA expects the share of the self employed segment to increase further.
Overall, while the ticket sizes for all HFCs was around Rs 2.4 million as on March 31, 2107, HFCs operating in the affordable segment had significantly lower ticket sizes, at Rs 1 million (affordable – new) and Rs 1.2 million (affordable – all). Nearly 60 per cent of the home loan portfolio for all HFCs taken together, as on March 31, 2017, were in the Rs 1-5 million brackets.
The increasing number of new entrants in the housing finance market, coupled with the focus of existing players, has increased the competitive intensity in the industry, leading to the dilution in lending norms.
“On the other hand,” added Nijjar, “the overall the increase in the share of the portfolio lent at higher fixed obligation to income ratio for small HFCs and new affordable segment which indicates higher portfolio vulnerability for these players. Moreover, an increase in the share of riskier sub-segments like non-housing loans, self-employed and affordable housing in the overall portfolio of HFCs could impact asset quality indicators of HFCs.
These may get partly mitigated by the strong monitoring and control processes of HFCs, borrowers’ own equity in the properties and the large proportion of the properties being financed for self-occupation especially in the affordable segment. Accordingly, we expect HFCs’ gross NPAs to increase from 0.8 per cent as on June 2017 but remain within 1.0 per cent and 1.3 per cent for FY2018.”