Akhilesh K Prasad
The Reserve Bank of India has reported in its January 2018 bulletin that Non-performing assets (NPAs) in affordable housing loans have shown a moderate increase during 2016-2017. Loans below Rs. 200,000 have shown a growth in disbursements. However, this category has also witnessed the highest increase in the level of NPAs.
In this category, Public Sector Banks (PSBs) have reported higher NPAs than Housing Finance Companies (HFCs). While NPAs for PSBs stood at a whopping 11.9 percent, NPAs for HFCs increased from 6.1 percent in 2015-2016 to 8.6 percent in 2016-2017. The combined NPAs of PSBs and HFCs in the sub-Rs. 200,000 stood at 10.4 percent in 2016-2017, up from 9.8 percent in 2015-2016.
Across all categories, there was a marginal increase in NPAs from 0.9 percent in 2015-2016 to 1.1 percent in 2015-2016. Meanwhile, International credit rating agency Moody’s and its Indian subsidiary has also stated in a recent report that the average gross non-performing assets (GNPAs) in affordable housing segment rose to 1.8 percent in September 2017 from 1.4 percent in March.
According to analysts and Housing Finance Companies (HFCs), this rise in NPAs was largely on account of implementation of demonetisation and GST which have affected the underlying cash flows of borrowers over the last year. Delinquencies are expected to rise further till cash flow of borrowers improves. However, some experts opine that this a temporary phase and correction is around the corner.
It is noteworthy here, according to ICRA data that the credit collection ratio (CCR) for traditional housing loan was in the range of 98 to 100 percent, whereas in the affordable segment, it found to be 94-96 percent. The disparity was attributed to the fact that traditional housing loan borrowers have regular cash flows. Whereas affordable housing loan borrowers, mostly in the informal sector or self-employed, generally have irregular cash-flows. Hence, a simple family or business problem could result in instalment defaults. Due to this, lenders factor in the risks of default in the loan pricing. Therefore, risk-adjusted return in affordable housing segment is said to be better than in traditional housing loans even though the latter boasts of better NPA levels.
Moreover, lenders tend to distinguish between NPAs and a Credit Loss, especially with respect to the rural market, which is largely dependent on the vagaries of nature. While classifying an account as an NPA is a statutory requirement, such lenders take into account that the borrower is willing but unable to pay instalments due to instances such as crop failure, as was the case in Maharashtra last year. Lenders understand that it may take another 2-3 crop cycles before the borrower can repay the accumulated outstanding.
That lenders do not as yet see the moderate rise in NPAs as a serious cause of concern can be gauged from the fact that loans in the sub-Rs. 10 lakh category saw an increase in the number of beneficiaries from 9.29 lakh in 2016-17 to 13.32 lakh in 2017-18.