Is Home Loan Slowly Growing Down?

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Home loan growth is likely to be lower than the previous years as buyers and investors will defer their home purchase on expected correction in real estate prices. Following demonetization, the growth in home loans in FY 2017 is likely to be lower at 16-18% from earlier expectations of 18-20%, as stated by a rating company. Demand from the self-employed segment is also likely to be subdued, as their business volumes may have affected. Reduction in Marginal Cost of Funds based Lending Rate (MCLR) by various banks could lead to increased competition and balance transfers, especially in the prime salaried segment, a report said.

In the Union Budget, the government has given 39% higher allocations under the Pradhan Mantri Awas Yojana along with infrastructure status accorded to affordable housing projects will stimulate wider investor community and improve the access to funding avenues. While growth in the prime home loan segment could witness moderation, affordable housing segment is likely to grow at a faster pace than industry with efforts, made to address the supply, demand and affordability issues. Asset quality indicators continue to remain resilient with the Gross NPAs of 0.8% as on September 30, 2016. Post demonetization, the delinquencies in the affordable housing and self-employed segments would increase given the borrowers’ reliance on cash transactions.

Given the expected correction in property prices liquidity of properties may hamper, affecting the loss given default. Despite rising portfolio vulnerability owing to increasing share of non-housing loans, higher share of self-employed and low-income borrowers within housing loan segment and high competitive intensity leading to dilution in lending norms (like relaxation of LTVs/FOIRs), a gross NPAs for HFCs to remain range bound between 0.9% – 1.3% over the medium term. Incremental funding costs for HFCs have come down considerably in the second half of FY2017 with many HFCs raising funds at median rates of 7.5-8%. Therefore, cost of funds is likely to moderate further for HFCs. The reported capital adequacy for HFCs remained comfortable, due to the benefit from relatively lower risk.

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