NBFCs, HFCs may face a crunch again

The financial metrics of mortgage lenders and non-banking finance companies (NBFCs) could deteriorate further due to non-availability of funding and the possibility of large loans to builders turning into bad loans next year when the moratorium expires, say rating companies.

For some of the companies, the wholesale lending part is high between 50 per cent and 90 per cent.

The prolonged economic slowdown could also impact the debt servicing ability of home loan buyers, raising a sense of déjà vu.


The housing loan portfolio for housing finance companies (HFCs) and NBFCs grew at a much slower pace of 3 per cent year-onyear for the quarter ended June 2019, compared with 20 per cent in the year-ago period, on account of a slump in demand. Wholesale loan book of non-banks de-grew further by 3-5 per cent in the first half of FY20.

This trend could continue for a couple of quarters amid challenging economic conditions while there has been a perceptible deterioration in overall asset quality too. Total housing credit outstanding is estimated to be around ?19.2 lakh crore as on June 30.

Besides, the real estate sector is facing headwinds as under-construction properties sold by builders under subvention or buyback or assured return schemes could be more vulnerable as some of the builders are facing a liquidity crunch and their ability to honour these obligations may be limited, according to Manushree Saggar, vice president and sector head of financial sector ratings at ICRA.

The major chunk of the banks’ wholesale loan books is under moratorium.

“The principal moratorium is estimated at 50-70 per cent of assets for some non-banks, going as high as 90 per cent in some cases. As the moratoria lapse, slippages will manifest. Consequently, non-performing assets are expected to rise in the near-to-medium term in the wholesale portfolios, as an increasing proportion of the loan book comes out of moratorium,” said Krishnan Sitaraman, senior director at Crisil Ratings.

ICRA’s Saggar has expressed concerns over asset quality, saying gross non-performing assets ratio for HFCs home loan segment might rise to 1.3-1.5 per cent over the medium term from the current level of 1.2 per cent.

“Delayed projects and reduced fund availability to the developers could lead to some further stress on the construction finance portfolio of the HFCs, leading to an increase in the overall GNPAs to 2.2 per cent from 1.8 per cent over the medium term,” she said.

This would impact their profitability too with some squeeze in the interest spreads.