The portfolio on the books of Housing Finance Companies (HFCs) is expected to grow by 10-12% in FY2023; the expectation is buoyancy will continue in the demand for housing credit.
The reduction in Gross Non-Performing Assets (GNPAs) is forecasted to continue in FY2023 following the reduction of 6 bps in Q1 FY2023. The GNPA assessment has been retained at 2.7-3.0% as of March 31, 2023. With growth in both the scale as well as improvement in asset quality indicators, the profitability is forecasted to revive almost to the pre-Covid level by the end of FY2023.
The Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) sector has a record year-on-year portfolio growth on the books of 15% (13% adjusted YoY) to Rs 12.7 crore as on June 30, 2022. The portfolio growth on the books in Q1 FY2023 was high as the last two fiscals registered a moderate growth in the first quarter.
ICRA in its latest research report forecasts the overall on-book portfolio growth for FY2023 to be lower than what was witnesses in Q1 FY2023. Moreover, the rising interest rate scenario may also moderate the growth to some extent.
Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, says, “The buoyancy seen in the on-book portfolio growth rate in the industry, post the second wave of Covid, persisted and the overall growth continued rising in Q1 FY2023. The growth was driven by the healthy demand in the industry and the increasing level of economic activity. Going forward, demand is expected to remain firm and ICRA accordingly retains its estimate of growth of 10-12% in the HFCs’ on-book portfolio in FY2023.”
The asset quality recovery was upwards in Q1 FY2023 and the GNPAs declined by 6 basis points (bps) to 3.1% as on June 30, 2022, from 3.2% as on March 31, 2022. This was due to increase in the on-book portfolio and recovery in the non-housing segment of some large HFCs. ICRA maintains this is against the general trend of an increase in the GNPAs in the first quarter of any fiscal.
The industry also continued to witness good recoveries from the restructured book and with growth in the assets under management (AUM). The standard restructured book declined to 1.3% of AUM as on June 30, 2022, from 1.7% as on March 31, 2022.
“The decline in the GNPAs to 3.1% as of June 30, 2022, was in line with ICRA’s estimate of 2.7-3.0% as on March 31, 2023. Though, generally the asset quality indicators deteriorate in the first quarter of a fiscal, this year it was different, as the continuing recovery efforts by HFCs and healthy growth in the on-book portfolio helped the industry. The improvement in GNPAs in Q1 FY2023 was driven by improvement in GNPAs of some large HFCs and it was not broad based. Nevertheless, ICRA expects further improvement in FY2023 and retains its GNPA estimate of 2.7-3.0% by March 31, 2023,” added Sachdeva.
The HFCs have been maintaining healthy balance sheet liquidity for the last few quarters. Most of the HFCs have gradually reduced their reliance on short-term funding sources like CP (Commercial Paper). This has helped improve asset-liability mismatches in the near-term buckets. With the reduced uncertainties and increasing interest rate scenario, HFCs are expected to reduce balance sheet and on-book liquidity from the current high level. It is nevertheless expected to remain comfortable.
Sachdeva further says, “While the Net Interest Margins (NIMs) may be impacted, due to the rising interest rate scenario, the overall profitability of HFCs is expected to improve to the pre-Covid level with Return on Assets (RoA) of 2.0-2.2% in FY2023, driven by lower credit cost requirement supported by improving asset quality and high provision cover. Keeping the credit costs under control would, therefore, be critical for incremental profitability.”
Ravi Sinha
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
Subscribe our YouTube Channel @ https://bit.ly/2tDugGl
