Delinquencies witness uptick, profitability resilient, credit profiles seen stable Assets under management (AUM) of housing finance companies (HFCs) grew at ~24 per cent last fiscal, or 300 basis points (bps) faster than CRISIL’s expectation, even as non-performing assets (NPAs) edged up 30 bps and profitability remained stable, an analysis of 20 HFCs accounting for over 90 per cent of sector AUM, according to a CRISIL report. In the home loan segment, AUM rose ~22 per cent last fiscal, which translated into a compound annual growth rate of ~20 per cent over the past three years. Consequently, the market share of HFCs in the home loan segment has increased by around 100 bps to ~43 per cent. Says Krishnan Sitaraman, Senior Director, CRISIL Ratings, “There are two reasons for the fast growth – first is the ability of HFCs to tap the massive opportunity in affordable housing, and second is the slower credit growth at banks providing HFCs the room to ramp up faster and continue gaining market share.” The non-housing segment (loan against property, developer funding, corporate loans, etc) remains the fastest-growing segment for HFCs, racking up 30 per cent growth last fiscal. Overall, HFCs are expected to continue doing well with home loan AUM seen growing at 18-20 per cent per annum. Housing shortage in the affordable segment, regulatory facilitation, entry of a large number of HFCs with sharp focus on the affordable segment will be the drivers. As for asset quality, the overall picture remains comfortable, but there has been an uptick in delinquencies in line with CRISIL’s expectations. Gross NPAs of HFCs stood at around 1.1 per cent as on March 31, 2018, compared with 0.8 per cent a year back. While, the overall sectoral gross NPA trend has been reasonably steady, some HFCs focusing on the affordable housing segment have shown an above-average increase in delinquencies with gross NPA at ~4-5 per cent. CRISIL believes two-year lagged gross NPAs are a better indicator of asset quality in mortgages because of their long tenures. That number stood at ~1.6 per cent on March 31, 2018, or 40 bps more than on March 31, 2017. Says Rama Patel, Director, CRISIL Ratings, “The uptick in slippages was expected given increasing delinquencies in the loan against property segment, sharper focus on low-ticket-size home loans, and increased lending to the self-employed customer segment.” CRISIL had earlier highlighted that delinquencies in these segments tend to be higher than the salaried segment. Profitability of HFCs was stable last fiscal with return on assets (adjusted for one-time gains) of around 1.9 per cent. However, going forward, net interest margins could get compressed owing to increase in funding costs and intensifying competition. Consequently, there could be some pressure on profitability in the coming quarters, particularly in the home loan segment. Control over credit costs and operating expenses will define the profitability of HFCs. Nevertheless, CRISIL expects the credit profiles of most of the HFCs it rates to remain stable, supported by strong capital position and adequate financial flexibility. Some HFCs also have strong parents. Further, many HFCs have shown the ability to swiftly adapt to changing market dynamics.