A continued slowdown in loan disbursements by the housing finance company, owing to tight liquidity condition, could have a spillover impact on retail home loan borrowers and property developers, says a report.
Loan disbursement in the four quarters to September 2018 averaged Rs 25,000 crore per month for large six housing finance companies (HFCs).
Following September 2018, per month average disbursement fell to Rs 13,500 crore as few large HFCs faced serious challenges.
"HFCs have slowed down their loan disbursements, which can have a spillover impact on both retail home loan borrowers and property developers," India Ratings and Research (Ind-Ra) said in a report.
It said tight funding in the housing finance industry has not only impacted fresh loan disbursement but also loans where disbursements are linked to construction, thereby impacting a large number of home buyers who could face challenges to service their commitments to property developers.
If the tightening continues, there could be a material impact on construction progress, thereby putting asset quality pressure on HFCs in the medium term. Moreover, there could be a double whammy if HFCs have dual exposure to developers and home loan borrowers with common exposure to underlying projects.
It said funding to developers has been significantly tightened, which if continues, there could be a material impact on construction progress, thereby putting asset quality pressure on HFCs in the medium term.
"There could be a double whammy if HFCs have dual exposure to developers and home loan borrowers with common exposure to underlying projects," the report said.
It further said the housing finance sector has been facing challenges, which have led to a contraction in spreads, a rise in funding cost and an increased spotlight on their asset-liability mismatches.
Such mismatches have resulted in constrained financing from both market-based sources (commercial papers and non-convertible debentures) and banks for many players.
The systemic rise in market borrowings rate has affected the housing loan business and the borrowing cost for some large HFCs could be upwards of banks marginal cost of funds-based lending rate (MCLR), the report said.
This has led to the shrinking of margins in mid-to-large ticket housing loans, where banks are highly competitive, it said.
"The ongoing challenges in the real estate and small and medium enterprise segments (loan against property customers) may lead to HFCs reassessing loan growth plans, thereby putting pressure on their margins," it added.