ICRA flags need to monitor asset quality as the loan book expands for affordable home financiers


The affordable housing finance company (AHFC) loan book is expected to grow 17-20% in fiscal 2023, rating agency ICRA said in a report. However, it also warned that asset quality needs to be monitored.

The growth of the loan book would be driven by factors such as “the largely underpenetrated market, benign demographic profile, government pressure on housing construction and a supportive regulatory and tax regime supporting growth prospects.” As of December 31, 2021, the total loan book of AHFCs was ₹66,221 billion, accounting for approximately 6% of the total HFC loan book.

Over the years, AHFCs’ share of the overall real estate finance industry has remained stable at 5-6%. However, the proportion within personal home loans of less than £10,000 has gradually increased.

While collection efficiency improved across all players in the second and third quarters of the fiscal year ended March, reported asset quality indicators for the third quarter were negatively impacted due to IRAC norms related to the clarification issued by the Reserve Bank, ICRA said.

“Following a moderation in loan book growth in the first quarter, growth for AHFCs picked up again in the second and third quarters, with AHFC payouts reaching 85-90% of fourth-quarter peaks,” said Vice President Manushree Saggar, Ratings of the Financial Sector, ICRA, . As a result, as of December 31, 2021, AHFCs reported 14% year-over-year growth.”

“Overall, long-term average growth has slowed, but remains higher than the overall home finance industry average,” she said.

Covid 2.0 has put pressure on asset quality indicators for these players and arrears, particularly in the softer buckets, have skyrocketed, she added.

“With the expectation of stable net interest margins, higher operational efficiencies at improved scale and modest borrowing costs, the return on assets (RoA) for these AHFCs is expected to be between 2.5% and 2.7% in fiscal 2023.”

“Longer term, the ability to continue to improve operational efficiencies and control borrowing costs would be essential to improve return metrics,” added Ms. Saggar.

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