There is significant statistical evidence that in the post-Covid period credit disbursements by smaller housing finance companies (HFCs) declined vis-á-vis big HFCs, per an article in RBI’s latest monthly bulletin.
This shows the disproportionate shock of the Covid-19 pandemic on the smaller HFCs, RBI officials Nandini Jayakumar, Rajnish Kumar Chandra, Brijesh P, and Prayag Singh Rawat said in an article “Housing Finance Companies and the Covid-19 Pandemic: Does Size Matter?”
The officials found that among the HFC specific variables, high GNPA (gross non-performing asset) ratio and funding cost dampen credit growth and high capital ratio stimulates it.
Their observations are based on data that spans from June 2016 to September 2022 and covers 58 HFCs. The dataset covers around 98 per cent of the HFC universe in terms of asset size (at end-March 2022).
The authors observed that small HFCs primarily operate in semi-urban and rural geographies, focusing on middle and low-income groups, underserved by banks and other large financial entities.
Target customers
Big HFCs, on the other hand, cater mostly to customers with stable income and have an urban focus.
HFCs differ in terms of their borrowing profiles as well, with small HFCs relying more on bank borrowings and refinance support from NHB (National Housing Bank), unlike big HFCs which have greater access to market borrowings.
This difference in their customer mix and overall structure of their lending and borrowing portfolios formed the basis of their exercise to assess the differential impact of Covid-19 on these two groups.