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COVID third wave can slash 200 bps from AUM growth of housing finance cos: CRISIL

COVID third wave can slash 200 bps from AUM growth of housing finance cos: CRISIL

With pick-up among HFCs in home loans segment, CRISIL expects the market share gain by banks to hit a speed breaker.

CRISIL expects growth in non-housing loans to be low at 2-3 per cent and their share in HFC AUM to shrink. CRISIL expects growth in non-housing loans to be low at 2-3 per cent and their share in HFC AUM to shrink.

Ratings agency CRISIL on Tuesday said that the third wave of COVID-19 pandemic can slash 200 basis points (bps) from the growth rate in assets under management (AUM) of housing finance companies (HFCs) in financial years 2021-22 and 2022-23.
 
The agency earlier expected AUM of HFCs to grow at 9-11 per cent compound annual growth rate (CAGR).
 
"Growth would still be higher compared with average of about 2 per cent over fiscals 2020 and 2021, though slower than the broad-based 24 per cent logged between fiscals 2011 and 2019, with a near two-fold increase in the number of HFCs over that decade, fuelled by easy availability of equity and debt capital," it said in a release.
 
CRISIL said that this time growth around will largely stem from players with better credit profiles. Organic consolidation, which started in fiscal 2019, will continue.
 
Of the total AUM of Rs 13.2 lakh crore of HFCs as on March 31, 2021, home loans were the largest segment (71 per cent), followed by wholesale loans (18 per cent) and loans against property (LAP: 11 per cent), according to the ratings agency.
 
"Home loans will be the fastest-growing segment, as lenders continue to be selective in the non-housing segment (comprising wholesale and LAP loans). After relatively low growth in recent years, the home loan segment is expected to clock 12-14 per cent CAGR over fiscals 2022 and 2023. This will be driven by improving sales, better affordability, and a preference for home ownership and larger homes. That said, the pandemic's third wave could shave off 100-200bps of this growth depending on its spread, intensity and duration," said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer at CRISIL.
 
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With this pick-up among HFCs, the market share gain by banks in home loans segment will hit a speed breaker, it said, adding that the banks had gained a 300 bps share over the three years through fiscal 2021.
 
"The non-housing loan segment is expected to continue witnessing subdued growth. Between fiscals 2011 and 2019, non-housing loans grew at a faster pace (about 27 per cent CAGR) compared with housing loans. However, default in debt servicing by a large infrastructure financing conglomerate in September 2018 and the consequent skewed funding environment triggered a shift in strategy among HFCs," it said.
 
CRISIL expects growth in non-housing loans to be low at 2-3 per cent and their share in HFC AUM to shrink.
 
Among HFCs, it expects specialised affordable housing financiers (AHFCs) to grow at 15-20 per cent CAGR through FY22 and FY23, driven by economic revival and a higher proportion of home loans in the portfolio, with favourable demand dynamics at play.
 
"While AHFCs' growth moderated to about 15 per cent and about 13 per cent in fiscals 2020 and 2021, respectively, from a CAGR of about 40 per cent between fiscals 2017 and 2019, it remains higher than that of traditional players. However, competition in this segment has intensified, as traditional HFCs are increasing disbursements in this segment and AHFCs are expanding their geographical footprint," said Subha Sri Narayanan, Director at CRISIL.
 
The rating agency also said that a structural shift is taking place in the segment, with HFCs resetting their business models to focus on AUM growth rather than balance sheet growth.

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