DHFL issue may cast a shadow on the sector

Mumbai: The alleged financial fraud by a large housing company could have implications for the broader sector, including increase in risk aversion by debt investors or lenders, said UBS.

Cobrapost on Tuesday accused Dewan Housing Finance Corporation of giving Rs 31,00 crore of loans to 'dubious' entities linked to promoters, that the news portal alleged, were the ultimate beneficiaries of the funds. Dewan Housing later issued a clarification on Cobrapost allegations, and in an investor call, suggested that it is in advanced stage to sell non-core assets. Shares of Dewan Housing ended down 5 per cent at Rs 161.60 on Wednesday, after falling 8 per cent the previous day. UBS does not have a coverage on Dewan Housing.

“Considering the recent default by IL&FS group, we think this report could pose significant risk to similar finance companies, especially those involved in developers lending,” said UBS.

The brokerage expects banks or debt investors to become more selective, thereby raising cost of funding for this segment.

UBS said that large, established players may not get impacted on funding but perhaps on credit risk in developer portfolios.

“Wholesale funded NBFC/banks may once again face higher scrutiny from debt investors and increased cost of funds in general,” said UBS. The brokerage said it prefers banks with falling credit costs and strong deposit franchise.

UBS’ most preferred stocks include ICICI Bank, Axis Bank, HDFC Bank and Kotak Mahindra Bank, while Yes Bank and Punjab National Bank are the least preferred.