Delay in developer loan repayment hits home finance cos

Project delays, stretched balance sheets impacting asset quality indicators of HFCs.

Hit by project delays and stretched balance sheets, developer loans disbursed by housing finance companies (HFCs) are showing a rise in delay of payments.

There has been a deterioration in the asset quality indicators for HFCs in the June quarter (Q1) of FY18 due to an increase in gross non-performing assets (NPAs), which rose from 0.84 per cent of gross advances on March 31 to 1.15 per cent as of June 30. The rise was largely attributed to an increase in non-housing book NPAs, according to rating agency ICRA.

Non-housing loan NPAs have increased from 1.45 per cent as of March 2017 to 2.2 per cent as of June 2017. The non-housing credit portfolio consists of loans to real estate firms and loans against properties.

Rohit Inamdar, group head of financial sector ratings, ICRA, said projects have been delayed and cash flows stretched for builders and developers. This has created stress on books, driving many to default on loan payments. Stress was building as of 12-18 months, he said.

The deterioration in asset quality indicators of some players in the affordable housing segment was also seen owing to seasoning of portfolio as well as some impact of demonetisation.

The loan book of HFCs was Rs 8,04,600 crore as of June 30, 2017, of which the non-housing loan book was 32 per cent. As of June 30, 2016, the loan book of HFCs was Rs 6,57,000 crore (Rs 6.5 lakh crore) of which the non-housing loan book was 30 per cent.

The asset quality of HFCs has remained resilient across cycles. Of late, there has been an increase in the share of riskier sub-segments such as non-housing loans, self-employed and affordable housing in the portfolio.

ICRA said HFCs’ gross NPAs would remain between 0.9 per cent and 1.3 per cent for FY18. Some of the risks such as increased loan tenures and ballooning of repayments could impact asset quality indicators negatively over the medium term.

These risks would be partly mitigated by strong monitoring and control processes of HFCs, borrowers’ own equity in the properties and the large proportion of the properties being financed for self-occupation, especially in the affordable segment, it said.

Photograph: Reuters.