Affordable housing finance companies loan book to grow 17-20% in FY23, says study

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Affordable housing finance companies’ (AHFCs) loan book is likely to expand by 17-20 per cent in the current financial year, supported by the government’s higher focus on housing and a favourable tax regime, says a report. As on December 31, 2021, the total loan book of AHFCs stood at Rs 66,221 crore and constituted about 6 per cent of the overall housing finance companies (HFCs) loan book.

“We expect the loan books for affordable housing finance companies (AHFC)s to grow by 17-20 per cent in FY2023, driven by factors like largely under-penetrated market, favourable demographic profile, government trust on housing and a favourable regulatory/tax regime that support the growth outlook,” rating agency Icra Ratings said in a recent report.

Its Vice President (Financial Sector Ratings) Manushree Saggar said after witnessing a moderation in the loan book growth in Q1 of FY2022, the growth for AHFCs picked up again in Q2 and Q3 FY2022, with their disbursements reaching 85-90 per cent of the peak levels seen in the fourth quarter of FY2021.

“As a result, the AHFCs reported a 14 per cent (year-on-year) growth as on December 31, 2021. Overall, while the growth has moderated over the long-term average, it continues to remain higher than the overall housing finance industry average,” she said.

The agency said the second wave of the Covid-19 pandemic exerted pressure on the asset quality indicators of AHFCs and delinquencies, especially in the softer buckets (0-30, 30-60 and 60-90 days past due, i.e. dpd) shot up significantly.

However, with improvement in collection efficiency in Q2 and Q3 FY2022, the delinquencies in the softer buckets moderated, it said.

At the same time, the reported gross NPAs/stage 3 percentage increased as entities aligned their reporting with the clarification issued by the RBI on Income Recognition, Asset Classification and Provisioning (IRACP) norms.

The 30 days past due for some AHFCs declined from 9 per cent as on June 30, 2021 to 6.8 per cent as on December 31, 2021 while the reported GNPA/Stage 3 percentage marginally increased from 4.2 per cent as on June 30, 2021 to 4.3 per cent as on December 31, 2021, the report said.

With some improvement in operating environment and business outlook, the agency expects that the reported gross NPA/stage 3 percentage will moderate in FY2023, supported by book growth and controlled fresh slippages.

Saggar further said with an expectation of stable net interest margins, higher operating efficiencies with improved scale and moderation in credit costs, the return on assets (RoA) for AHFCs is likely to be between 2.5-2.7 per cent in FY2023.

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