Call this a New Year gift from the Narendra Modi government to the housing finance sector. The Finance Ministry has allowed 41 more housing finance companies (HFCs) ( Click here for full list - pdf ) to use the SARFAESI law, bolstering their efforts in recovery of dues and thereby reducing their non-performing assets.
This move of the Department of Financial Services (DFS) is also expected to build confidence among the HFCs to lend more to the vulnerable section of society, thereby aiding financial inclusion.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, empowers banks and financial institutions to attach pledged assets of the borrower in the event of the non-repayment of dues by the borrower.
Reacting to this latest Finance Ministry move, Anil Kothuri, President and Head-Retail Finance, Edelweiss Financial Services, said this would help in reduction of non-performing assets (NPAs) for the company.
‘On par with others’ “SARFAESI law will be a quicker way to recover our dues instead of going through regular court. The entire recovery process will get accelerated. It will also put us on par with other players in the housing finance industry who already use SARFAESI law,” Kothuri told BusinessLine .
Edelweiss Housing Finance, the housing finance arm of the Edelweiss Group, forms part of the list of 41 HFCs notified by the Finance Ministry as an eligible “financial institution” to use the SARFAESI law for recovery of dues.
The other players who form part of this list include Reliance Home Finance, Tata Capital Housing Finance, Shriram Housing Finance, DMI Housing Finance, Aditya Birla Housing Finance, Muthoot Housing Finance and Manappuram Home Finance.
KV Srinivasan, CEO, Reliance Commercial Finance, said that it’s an enabling norm for the industry to deal with habitual and stubborn defaulters, something used by the industry very cautiously and remotely after exhausting options. In India, banks were always covered under the SARFAESI law, ever since it’s enactment in 2002.
NPA situation Housing finance (residential mortgage) has been growing at a scorching pace (about 20 per cent in the case of HFCs) with total outstanding home loan portfolio estimated at about ₹10 lakh crore as of December 31, 2014.
Currently, the non-performing assets level for HFCs is miniscule.
Their gross NPAs as on December 31, 2014 stood at 0.74 per cent.
Despite the stress in their operating environment, many HFCs have been able to maintain their asset quality.
Of the housing loan book of ₹10 lakh crore, banks accounted for as much as ₹6.3 lakh crore while the remaining ₹3.7 lakh crore came from the HFCs.
The housing finance market is dominated by five major groups — State Bank of India, LIC Housing Finance, HDFC, ICICI Bank and Axis Bank. The five entities account for over 60 per cent of housing credit in the country.
Financial inclusion Enabling HFCs to use SARFAESI law could aid in financial inclusion as these companies are expected to come forward to lend more to people with informal incomes. “This will improve collateral enforceability and so companies are expected to lend more to the common man. It will obliquely aid financial inclusion,” said a top industry official.