Rating agency ICRA expects the loan books for affordable housing finance companies (AHFCs) to grow by 17-20 percent in FY2023, driven by factors like a largely underpenetrated market, favourable demographic profile, government trust in housing and a favourable regulatory/tax regime that support the growth outlook.
As of December 31, 2021, the total loan book of AHFCs stood at ₹66,221 crore and constituted about 6 percent of the overall HFC loan book, said ICRA.
“After witnessing a moderation in the loan book growth in Q1FY22, the growth for AHFCs picked up again in Q2 and Q3FY22, with disbursements for the AHFCs reaching 85-90 percent of the peak levels seen in Q4FY21. As a result, the AHFCs reported a 14 percent (year-on-year) growth as of December 31, 2021. Overall, while the growth has moderated over the long-term average, it continues to remain higher than the overall housing finance industry average,” said Manushree Saggar, Vice President, Financial Sector Ratings, ICRA.
Covid 2.0 had exerted pressure on the asset quality indicators for these players and delinquencies, especially in the softer buckets shot up significantly. However, with improvement in collection efficiency in Q2 and Q3 FY2022, the delinquencies in the softer buckets moderated, ICRA said.
At the same time, the reported gross NPAs/Stage 3 percent increased as entities aligned their reporting with the clarification issued by the RBI on IRAC norms. To put this in perspective, the 30 days past due for some AHFCs [1]declined from 9 percent as of June 30, 2021, to 6.8 percent as of December 31, 2021, while the reported GNPA/Stage 3 percent marginally increased from 4.2 percent as on June 30, 2021, to 4.3 percent as on December 31, 2021.
With some improvement in the operating environment and business outlook, ICRA expects that the reported gross NPA/stage 3 percent will moderate in FY2023, supported by book growth and controlled fresh slippages.
The liquidity profile of these entities is expected to remain comfortable supported by the sizeable on-balance sheet liquidity being maintained by these players and comfortable capitalisation levels.
At the same time, the availability of funding lines would be imperative for growth. The banking channel and NHB will remain key sources of incremental funding, the rating agency pointed out.
These AHFCs would need external capital for growth in case they were to return to a high growth trajectory as internal capital generation remains modest. Improvement in the earnings profile of these AHFCs in 9MFY2022 was supported by better margins and moderation in the credit costs.
While operating expenses witnessed an uptick with higher business volumes, the impact was offset by the reduction in credit costs.
“With an expectation of stable net interest margins, higher operating efficiencies with improved scale and moderation in credit costs, the return on assets (RoA) for these AHFCs is likely to be between 2.5-2.7 percent in FY23. Over the long term, the ability to improve the operating efficiencies further and control the credit costs would be imperative for improving the return indicators,” Saggar concluded.
