HFC asset quality to come under pressure post COVID: Report

MUMBAI: Home loan growth and its asset quality of housing finance companies (HFCs) will come under pressure following the economic impact of coronavirus pandemic as salaried class and self-employed face the prospect of a job loss salary cuts, according to ratings firm Icra.
ICRA Ratings expects the Covid-19 related slowdown in home loans extended by HFCs 11-13% in FY'2020. It expects the slowdown in home loan disbursals in the first half of FY'2021 as well. Recovery in the second half would be dependent on the overall economic turnaround, it said.

"It is likely that people will defer their home purchases and home improvement/extension decisions in the current fiscal, till they are able to achieve stability in income levels and resumption of business activities ” said Supreeta Nijjar, vice president and sector head financial sector ratings, Icra.

Icra expects non-performing assets in the housing segment to increase to 1.8-2% by March 2021 from 1.4% as of December 2019. While slippages in the non-housing segment could be higher with gross NPAs increasing to 3-3.5% in FY'2021 from 2.1% as on December 31, 2019. "Liquidity of repossessed properties could get impacted, leading to delays in recoveries or possibly higher losses on the sale of such properties” added Ms Nijjar.

The RBI has also taken steps to infuse liquidity into the system via targeted long-term repo operations (TLTROs), which could increase the available liquidity. The Rs. 50,000 crore of additional TLTROs announced on April 17, 2020 and the additional Rs. 10,000 crore of refinance facility to National Housing Bank (NHB) will support the immediate liquidity requirements of HFCs to some extent, especially those operating in the affordable housing space where collections are likely to be impacted more.