Housing credit growth is likely to grow to 17-19% in FY19, backed by the growing affordability of houses for first-time buyers helped by government incentives such as the Pradhan Mantri Awas Yojana, according to ICRA.

In its latest research update on housing finance companies (HFCs), the rating agency said government incentives are expected to boost primary home purchases, especially in the affordable housing segment.

ICRA estimates that with steady housing credit growth of 16% in FY18, mortgage penetration, which is the housing credit as a percentage of GDP, touched 10%, as of March 31. It was 9.5% last year. ICRA expects mortgage penetration levels to rise by 300-500 basis points (bps) over the next five years.

The overall assent quality for all HFCs remained stable with gross non-performing assets (NPAs) of 1.1% as of March 31. Gross NPAs stood at 1.2% as of December 31, 2017, and 0.8% as of March 31, 2017. ICRA expects overall gross NPAs for HFCs to remain between 1.2% and 1.5%.

“The retail home loan asset quality of HFCs is likely to be benefitted by the recent Cabinet ordinance to treat home buyers as financial creditors,” ICRA says.

Earlier this month, President Ram Nath Kovind gave his assent to the ordinance amending the Insolvency and Bankruptcy Code (IBC) to recognise home buyers as financial creditors. The ordinance will provide significant relief to home buyers as it would give them due representation in the Committee of Creditors and make them an integral part of the decision-making process. They will have a share in the proceeds earned by the sale of assets of bankrupt real estate companies.

Supreeta Nijjar, vice-president and sector head, financial sector ratings, ICRA, says in the note that HFCs will need to tie up the incremental funding requirements of around Rs 4 lakh crore to meet their growth plans as well as replace the maturing liabilities in FY19.

“Going forward, incremental funding from banks, especially PSBs, will be lower owing to their capital constraints,” she says.

Newer HFCs in the affordable housing segment grew more than the overall industry growth rate of 39%. But gross NPAs in the sub-segment fell from 3.3% last year, to 4.1% as of March 31, 2018, driven by greater portfolio seasoning, entity-specific factors and external events such as demonetisation and the goods and services tax (GST), impacting the cash flows of the borrowers, ICRA said.

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