Housing finance companies’ AUM is seen growing 12-14 per cent in FY24 and FY25 led by continued growth momentum in housing loans coupled with an expected revival in developer loans, according to CareEdge Ratings.
“While the share of wholesale financing of HFCs is expected to rise in the medium term, it is broadly expected to remain in the range of 10-12 per cent as financiers embark on cautious growth,” said Gaurav Dixit, Director – BFSI Ratings.
The residential real estate sector is experiencing robust demand, backed by strong macroeconomic fundamentals and drivers such as improving affordability, rising urbanization, a low mortgage-to-GDP ratio, favourable demographics and government policies. Shift in post-pandemic consumer behaviour towards a preference for open living spaces, premiumization, as well as other factors such as low-interest rates and stamp duty rebates, are also supporting growth.
Strong residential sales
HFCs’ AUM grew 9 per cent in FY23, with the housing segment growing 13 per cent, while the non-housing portfolio, including developer finance contracted marginally. As of March 2023 (excluding HDFC), HFCs’ outstanding portfolio stood at ₹7.4 lakh crore , of which housing loans comprised ₹5.5 lakh crore. In comparison, housing loans by banks stood at ₹19.4 lakh crore.
“In the backdrop of strong residential sales, a shrinking pool of stressed developers and progressive resolutions/ recoveries within the developer financing book, the share of developer financing is expected to gradually pick up in the medium term,” CareEdge said, adding that the pool of stressed wholesale assets as a proportion to HFCs’ net worth is expected to improve to roughly 10 per cent by March 2024.
Net NPA
Net NPA to net worth for HFCs improved from 16.6 per cent to 11.7 per cent. Stage 3 provision cover ratio, estimated at 42 per cent as of March 2023, is expected to remain healthy in the range of 44-46 per cent in the near to medium term.
Going forward, lenders are expected to adopt a calibrated approach between growth and asset quality. Further, anticipated interest rate cuts in FY25 are also expected to lead to downward pressure on margins as portfolios reprice faster vis-a-vis borrowing.
While NIMs may be marginally impacted, profitability is expected to remain robust, supported by portfolio growth, with comfortable asset quality, and receding credit costs, CareEdge said. It added that it expects return on total assets (ROTA) to be near or marginally exceed pre-Covid levels.
However, regulatory changes, tighter liquidity, continuation of elevated interest rates, delayed resolutions/ recoveries with respect to wholesale loans and competition from banks may pose downside risks.