Amidst coronavirus outreak, Housing Finance Companies (HFCs) are confident and expecting the growth in double digits in fiscal year 2021. However, the asset quality and profitability will be challenging as the borrowing cost and credit prices might hike, considering negligence in the developer loan and credit against property.
Lack of funding and a slowdown in housing sales led to changed demand for mortgage loans last year. The surge in loan growth in the next fiscal year is dependent upon HFCs and their redefined business model.
The funding situation is forbidding and impacting the loan growth due to liquidity crunch faced by HFCs. Raising funds from the capital market is still strenuous. With the continuous decline in the ways of traditional borrowing, HFCs have initiated to get a major portion of their funding through the securitisation route.
As per the co-lending model, there can be a beneficial situation for all stakeholders. Banks can permit expansion of HFCs’ geographic reach and it would be beneficial for their servicing capabilities. HFCs could also get access to high profile clients.
The affordable housing space encompasses around 15% of the overall portfolio of HFCs. It is the key area of interest for banks and co-lending organizations as it offers a momentum to drive growth.
HFCs are making efforts to improve their business models, however asset quality is questionable. It gets adversely impacted due to major focus on wholesale loan portfolio of HFCs. Surge in NPA levels leads to higher provisioning costs and then challenges the profitability of HFCs.
With increased funding challenges, the HFCs’ are somehow managing the asset quality and liquidity to reshape their strategies.