Some NBFCs have already cut back a bit on disbursement targets this year as funding dries up, said experts and company insiders. Growth could be down 200-500 basis points for an industry that was thriving due to a lending slowdown by banks.
“With mutual funds shying away from smaller NBFCs, the sector is likely to report lower growth, and the actual number will depend on how the liquidity situation pans out,” said Karthik Srinivasan, senior vice-president of rating agency Icra. “Going by the current situation, the growth is likely to slow down by 200-300 basis points to 15% for FY19. While market rates are up 80-100 basis points since the beginning of the year, the weighted average cost of funds for NBFCs is expected to rise 50-60 basis points.”
Mumbai-based DHFL has deferred big-ticket loans and is lending only to select customers under the affordable housing scheme. “We have deferred all big-ticket loans while going very selective on affordable housing.
Everybody is slowing their business. Growth will taper down,” a senior executive at DHFL told ET, requesting anonymity.
LENDERS TURN CAUTIOUS
The DHFL executive said the company is trying to sell loan pools to banks in securitisation deals or by way of direct assignment to raise funds. DHFL had a loan book of Rs 1 lakh crore at the end of June. Despite their long-term asset portfolios, housing finance companies depend on bank loans and short-term funds to grow business.
Banks and investors like mutual funds have cut back on funding to non-bank lenders in the wake of last month’s IL&FS crisis.
The National Housing Bank, which regulates specialised housing finance companies (HFCs), has sought details on the financials and cash position of the firms. It is also trying to improve liquidity and announced on Monday that its refinance target for FY19 has been increased to Rs 30,000 crore this year, from Rs 24,000 crore.
The move is likely to benefit medium and small HFCs the most. “This is undoubtedly an additional credit line. But it remains to be seen if companies find such refinancing cost effective as the whole market is in the grip of fear psychosis,” said a top executive with a housing finance company. Experts said this year may not see high growth, like the previous ones. Edelweiss has reduced asset growth estimates for the sector by 5-7%. It said incremental growth will be concentrated in a few strong players with robust liquidity support, better credit rating and prudent risk appetite.
“Recent developments like downgrades in AAA-rated NBFCs will lead to systemic risk averseness towards NBFCs and HFCs, and incremental liquidity will become expensive,” said Kunal Shah, analyst at Edelweiss Securities. “We have pruned net interest margin estimate for NBFCs to 15-30 basis points range. Risk appetite will be low and growth is likely to moderate.” India’s GDP, which saw two-year high growth at 8.2% in the April-June quarter, may be moderated if the current crisis snowballs into a larger one. On October 5, RBI maintained its GDP projection at 7.4% for FY19.
Aadhar Housing has also cut back on loan disbursement targets. “We have reduced loan disbursement to 20% of normal to avoid defaulting as we fear that shorter-term papers which are to mature in the next couple of months may not be rolled over,” said Deo Shankar Tripathi, chief executive of Aadhar Housing, which has focused on the affordable housing segment. The company has Rs 9,000 crore of loan outstandings. “Banks have not released funds. Many of them are not doing it despite sanctioned limits,” Tripathi said.
Shares of NBFCs fell up to 18.5% Monday after the Reserve Bank of India said it is looking to tighten guidelines to prevent instances of asset-liability mismatch by non-banking lenders. DHFL shares crashed 18.52%, Edelweiss Financial Services 13.67%, Shriram City Union Finance 6.82%, Cholamandalam Investment and Finance 6.07%, Muthoot Capital Services 4.48% and Motilal Oswal Financial Services 2.48%. Among others, shares of Srei Infrastructure Finance declined 2.48% while Mahindra & Mahindra Financial Services lost 2.37%.
Gagan Banga, vice-chairman of Indiabulls Housing Finance, said he is confident of sustaining growth. “Large loans happen during the end of the quarter while retail loans go on as normal,” Banga said. “Our focus on retail is because 81% of the book is retail.”