According to ICRA's recent report, housing credit growth has witnessed a slowdown in the financial year (FY) 2016-17. The home loan sector has managed to record a growth of 16 percent, compared to the previous financial year, which had reported a rise of 19 percent. However, the outstanding home loans have risen to Rs 14.4 lakh crore as on March 31, 2017 against Rs 12.4 lakh crore as on March 31, 2016. Experts state that the demonetisation drive launched in November 2016 is the main reason behind the slowdown.
The report observes that the slowdown trend is evident among housing finance companies (HFCs) as well as banks. However, the decline witnessed by banks was higher as the growth chart dipped from 18 percent in 2016 to 15 percent in 2017.
Rohit Inamdar, Senior Vice-President and Group Head, Financial Sector Ratings, ICRA, states that with a total portfolio of Rs 1.2 lakh crore, the HFCs operating in the affordable housing space have shown a growth trend and moved upwards at a faster pace of 28 percent in FY17 compared to the rest of the industry. This growth was supported by an increase in supply of affordable housing projects, the infrastructure status accorded to the affordable housing sector, and the improved borrower affordability supported by lower interest rates and capital subsidy through the credit-linked subsidy scheme, added Inamdar.
Further, the report noted that the asset quality of HFCs stayed comfortable with gross non-performing assets (NPAs) remaining 0.84 percent as on March 31, 2017. Higher NPAs were reported by smaller HFCs with a higher share of self-employed customers in the third quarter (Q3) of 2016-17 (FY17) with borrower cash flows being severely impacted by demonetisation.
Due to the softening of interest rates and the higher share of debt market borrowings, HFCs' overall cost of funds slipped marginally to 8.08 percent in Q4 FY17 from 8.48 percent in Q3 FY17.