Indian Mortgage Finance Market PDF

INDIAN MORTGAGE
FINANCE MARKET
APRIL 2020
Covid-19 to weaken asset quality and
growth
Ma . swa
Karthik Srinivasan Supreeta Nijjar Manushree Saggar Deeksha Agarwal

+91 022 6114 3444 +91 124 4545 324 +91 124 4545 316 +91 124 4545 833
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karthiks@icraindia.com supreetan@icraindia.com manushrees@icraindia.com deeksha.agarwal@icraindia.com

CONTENTS
1. Executive Summary 03
2. Covid-19 Impact 07
Segment-wise impact
Key regulatory changes – Covid-19 regulatory package
3. Industry Trends 22
Funding constraints accentuate housing credit slowdown
Significant slowdown in growth for HFCs
Affordable housing HFCs continue to grow faster than industry
Steady decline in share of housing loans in on-book portfolio
4. Asset Quality 27
Asset quality deteriorates due to deterioration in wholesale segment
Asset quality outlook
5. Funding & Liquidity 32
Increase in share of fixed deposits, bank loans and securitisation
Fixed deposits, securitisation and NCDs form majority of incremental funding mix for HFCs in CY2019
Bond issuances continue to be dominated by top few players
CP issuances declining for HFCs
Loan sell-downs continue to support HFCs’ funding requirements; ECB approvals increase in H1 FY2020
Tight credit flow keeps cost of funds elevated
Liquidity gaps reduce with reduction in share of shorter-tenure borrowings
6. Capitalisation & Profitability 39
Adequate capitalisation indicators; NHB’s proposed guidelines a positive from risk perspective
Some moderation in profitability indicators
7. Quarterly Performance Trend 42
8. Market Dynamics 46
9. ICRA Ratings in the Sector 49
10. Annexure 54
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Executive Summary
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The Covid-19 induced slowdown is likely to further impact the performance of housing finance companies (HFCs), which were facing slower growth, liability and asset quality
related challenges in FY2020. ICRA expects housing credit growth in the range of 9%-12% in FY2021 (lower than the last three years’ CAGR of 16%). The growth is expected to
be slower in H1 FY2021 while recovery in H2 FY2021 would depend on the overall economic turnaround. Some people may defer their home purchases and home
improvement/extension decisions till they are able to achieve stability in their income levels/resumption in business activities.
Overall, there could be an impact on the asset quality across all segments - housing loans, loan against property (LAP) and construction finance. Within housing, the asset quality
in the affordable and self-employed segment could worsen more vis-à-vis the salaried segment, which is expected to exhibit more resilience except sectors that could face
salary cuts/ job losses impacting their debt-servicing capacity. The construction finance segment would also get impacted because of labour migration and lockdowns, which
will delay project execution, completion and sales, and further impact the cash flow of this borrower segment. Considering the expected impact on the income levels of these
borrowers during the lockdown period, the revival trajectory and income stabilisation would be fairly long-drawn. With tougher refinancing conditions, this segment would
face higher delinquencies and loan losses. Further, the liquidity of repossessed properties could get impacted which could also impact the losses on the sale of properties
especially those that were financed at higher loan-to-value (LTV) ratios. ICRA expects the gross non-performing assets (GNPAs) in the housing segment to increase to 1.8%-2.0%
in FY2021 from 1.4% as of September 2019 while slippages in the non-housing segment could be higher, leading to overall GNPAs of 3.0%-3.5% in FY2021.
ICRA takes note of the various initiatives taken by the Government and the Reserve Bank of India (RBI) to bolster the segment, including the 3-month moratorium on term loans
and working capital borrowings, which can, in turn, be passed on to the borrowers. Most entities carry liquidity for 1-2 months for debt servicing and other routine expenses.
ICRA believes that entities (large and highly rated entities) may initially exhibit inertia to take the moratorium for their borrowings. However, considering the uncertainties
regarding the lockdown period and the impact on economic activity and collections, many entities may be forced to conserve liquidity and opt for the moratorium. Also, the
moratorium is not applicable for market instruments like non-convertible debentures (NCDs), etc, which account for a higher share of higher rated entities. ICRA believes that
the entities are expected to extend need-based moratorium to their borrowers, which can support their inflows and liquidity to an extent.
The RBI has also taken steps to infuse liquidity into the system via targeted long-term repo operations (TLTRO) of Rs. 1 lakh crore, a 100-bps cut in the cash reserve ratio (CRR)
of banks (available for one year) and an increase in the marginal standing facility (MSF) by 1% (available till June 2020), which altogether could result in an increase in the
available liquidity by about Rs. 3.7 lakh crore. The system was already carrying surplus liquidity of about Rs. 2.5-3.0 lakh crore. Therefore, a sharp increase in system liquidity
could find its way into the non-bank1 sector as well. However, in view of the heightened credit risk and existing high exposure levels (~8-9% of the bank credit) of the banking
1 Non-banks – Non-banking financial companies (NBFCs) and HFCs

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system, the extent of the same remains to be seen. Risk aversion can be observed with the widening in the risk premium since March 2020 and the continuation of the same
even after the announcement of the sizeable liquidity-boosting measures. Also, most of the incremental exposures that would be taken by banks are expected to be towards
entities that are highly rated, retail focussed, and have a strong parentage.
Lenders would also take cognisance of the same in taking any incremental credit exposure to the segment. ICRA notes that loan sell-downs [securitisation/direct assignments
(DA)], which supported the segment post the liquidity tightening in September 2018, would also witness a slowdown in view of the heightened credit risk. ICRA expects minimal
loan sell-down transactions in Q1 FY2021 with some revival in demand from H2 FY2021, depending on the segmental asset quality. In view of the above, loan sell-downs in
FY2021 are expected to be lower than the volumes seen in FY2020.
The business growth and all key performance parameters (asset quality, solvency, liquidity, earnings) are expected to weaken over the next 1-2 quarters and a recovery in the
latter part of the next fiscal would depend on the overall economic turnaround. However, during this period, the capitalisation profile is expected to remain adequate from a
regulatory and solvency perspective.
9M FY2020 Updates
Housing Credit Growth: In line with the estimates as per ICRA’s last research report, the overall on-book housing loan portfolio growth of HFCs and non-banking financial
companies (NBFCs) reduced significantly to 6% YoY for the period ended December 2019 owing to lower disbursements due to continued funding constraints for the sector and
portfolio sales made by HFCs through securitisation. The pace of growth of banks remained higher than that of HFCs, partly supported by portfolio buyouts, leading to an overall
market growth of 13% (16% for the same period last year). ICRA estimates that the total housing credit outstanding stood at Rs. 20.7 lakh crore as on December 31, 2019. While
ICRA expects the long-term prospects of the segment to remain good, disbursements in Q4 FY2020 are also expected to be lower than usual owing to the Covid-19 related
lockdown, which impacted disbursements in March 2020. The housing credit growth is likely to be 12-14% in FY2020. A shift in the market share was also seen in the last one
year between the key lender segments with the share of banks increasing to 66% as on December 31, 2019. This trend could continue for a couple of quarters.
Asset Quality: The overall GNPAs (stage 3 assets as per revised Ind-AS June 2018 onwards) increased to 2.2% as on December 31, 2019 (1.6% as on March 31, 2019) due to a
deterioration across HFCs in the wholesale loan construction finance segment, given the tight liquidity faced by some developers with delayed projects and the reduced fund
availability for the developers. Going forward, the loss of livelihoods and a reduction in income, especially for self-employed borrowers engaged in non-essential services, are
likely to impact incomes and hence the asset quality of retail home loans as well. While the lifetime losses on secured retail loans such as home loans and LAP are partly limited
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by the underlying collateral and a moderate LTV, a downward movement in property prices could expose lenders to higher levels of credit risk. The typical March/Q4 pullback
in the asset quality, which is witnessed by most players, may not be visible in Q4 FY2020 and the overdues are expected to remain elevated at least in the near term.
Funding Mix: The share of commercial paper (CP) borrowings remained at 5% of the overall borrowings of HFCs as on December 31, 2019 (7% as on December 31, 2018 and
10% as on March 31, 2018). The CP borrowings have largely been refinanced by bank borrowings, the share of which increased to 26% as on December 31, 2019 from 24% as
on March 31, 2019, and by securitisation, the share of which increased to 14% of the overall borrowing mix from 12% during the same period.
Profitability: The overall profitability indicators for HFCs improved because of the non-interest income booked by a large HFC2 with a return on equity (RoE) of 28%. Excluding
this, the RoE moderated to 12.6% in 9M FY2020 from 13.7% in FY2019 owing to some compression in the interest spreads. Going forward, the net interest margins (NIMs) are
expected to remain stable as the cost of funds could moderate. However, a slowdown in growth is likely to impact the operating expense ratios. While the profitability indicators
(RoE) for FY2020 are likely to remain rangebound between 13% and 15%, (partly supported by the upfront income booking on assignments), a prolonged slowdown in growth
and the Covid-19 related impact on the asset quality could lead to an increase in credit costs. This could lead to a moderation in the profitability indicators for FY2021.
2
Pertains to the income earned by HDFC Limited on account of sale of its subsidiary – GRUH Finance Limited to Bandhan Bank Limited
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Covid-19 Impact
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The overall HFC credit is estimated at Rs. 11.1 lakh crore as on December 31, 2019, with exposures ranging from home loans, LAP, construction finance and lease
rental discounting (LRD). While ICRA notes that HFCs faced liquidity constraints post September 2018, which led to slower growth for the sector as a whole, the Covid-
19 related slowdown in economic activity would further aggravate the already subdued demand environment. This would impact their business in March 2020, which
typically witnesses robust levels of disbursements, and would lead to slower-than-envisaged growth in the current fiscal.
Further, the lockdown has impacted the cash flow and liquidity position of many borrowers (individuals, small businesses and corporates), impacting their debt-
servicing capabilities. The impact would be more prominent on self-employed borrowers, the daily wage workforce, and small businesses (non-essentials).
HFCs have a significant exposure to self-employed borrowers both through home loans and LAP, and the affordable segment, where the cash flows are expected to
be more volatile in the current situation vis-à-vis their salaried counterparts. Further, most of these borrowers have limited funding avenues. HFCs, which are already
facing funding constraints and an expected increase in delinquencies, are likely to focus more on collections, at least in the near term. Therefore, the lack of
supplementary credit funding could have a significant negative impact on these borrowers as their cash flow mismatches would compound with the passage of time.
If the Covid-19 related movement and business restrictions continue for a longer period (i.e. 2-3 months) vis-à-vis the current expectation of a few weeks, the impact
would be more adverse. Further, a decline in property prices and a decline in the income level of the borrowers would impact the valuations and debt-servicing
capability of the borrowers and increase the portfolio-level LTVs, which could increase the loss given default if the properties were to be liquidated.
While all HFCs are facing significant headwinds because of the currently evolving situation, their ability to keep adequate liquidity and control the asset quality would
be the key differentiator. The typical March/Q4 pullback in the asset quality, which is witnessed by most players, may not be visible in Q4 FY2020 and the overdues
are expected to remain elevated, at least in the near term. A deterioration in the asset quality could further stifle the fund flow to the sector as bank credit to the
sector is already high and funding from other sources like mutual funds (MFs), insurance, foreign institutional investors (FIIs), etc, are likely to be quite muted vis-à-
vis the levels witnessed so far in the current fiscal.
Based on its expectation of asset quality related concerns, ICRA has provided a risk coding to each of the key operating segments of HFCs. The HFCs’ overdues and
credit losses could go up about 50-100% over the next few quarters and could increase further if the impact of Covid-19 on business activities persists for a longer-
than-expected period.
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Exhibit 1: Risk Coding
Extent of Impact Risk Coding Increase in DPDs and Credit Cost vis-à-vis Current Levels
Adverse >100%
High 51-100%
Moderate 26-50%
Low <25%
Exhibit 2: Segment-wise Impact

Expected
90+dpd3
Sub-Category Risk Sub % of Total Comments - Asset Quality Impact
Dec-19/ Mar-19
Level
A prolonged stagnation or moderation in activity levels would impact the income and employment levels
1.4% in the salaried segment. Further, borrowers employed in industries such as tourism, which are heavily
(Dec-19) / impacted by the Covid-19 slowdown, could face salary cuts/job losses, impacting their debt-servicing
Prime Housing 62% capacity. However, a significant impact is likely to be visible from April 2020 as collections for March 2020
Loans 0.8% would have largely happened in the initial 10 days of the month when the lockdown impact was not there.
(Mar-19)
In the self-employed segment, a fall in the income levels for a prolonged period could adversely impact
the borrower’s debt-servicing capabilities. Thus, the asset quality is expected to weaken in the next few
quarters.
3 Based on the ICRA sample of entities and ICRA’s estimates; & – Basis Sep-19 data
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Expected
90+dpd3
Dec-19/ Mar-19
Level
4.5% This segment would be more impacted due to the limited cushion available for this borrower segment to
Dec-19/ absorb income shocks. There could be a higher loss of livelihood among cash salaried and self-employed
Affordable
0.5% workers owing to the slowdown and this would lead to a spike in delinquencies. However, a significant
Housing
4.7% impact is likely to be visible only from April 2020 as collections for March 2020 would have largely happened
Mar-19 in the initial 10 days of the month when the lockdown impact was not there.
Most of the new-age NBFCs and fintech entities operating in this segment (loan size of >Rs. 5 million) were
already facing an increase in loan write-offs and delinquency levels in 9M FY2020. Most of the loans
extended to this segment would be at a fixed obligation to income ratio (FOIR) of 30-50%. A fall in the
income levels for a prolonged period could adversely impact the borrower’s debt-servicing capability. Thus,
1.8% the asset quality issues are expected to aggravate further in March 2020 and would remain an overhang on
(Dec-19)/ the segmental performance in the near to medium term.
LAP 15%
1.6% Small businesses in the manufacturing segment (machine/component manufacturing, textile power looms),
(Mar-19) which are already facing a demand slowdown, would be affected further as they would face lower labour
availability and working orders.
Some businesses (services sector) like kirana stores, pharmacies, etc, are likely to be less impacted. Specific
small businesses in the services sector (transport, small eateries, hotels and
retailers/wholesalers/distributors of other non-essentials, etc) would face significantly lower demand or
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Expected
90+dpd3
Dec-19/ Mar-19
Level
income levels because of a partial or total lockdown of movement for a large majority, who are their
potential customers.
Entities with larger ticket sizes (> Rs. 5 million) would also be affected as some of these loans are offered at
a higher FOIR (50-60%) based on the property collateral. A disruption in the cash flows of the borrowers in
this segment on account of the various business lockdowns (partial/total) would result in an increase in
overdues.
The typical March/Q4 pullback in the asset quality, which is witnessed by most players, may not be visible
in Q4 FY2020 and the overdues are expected to remain elevated in the near to medium term.
The residential real estate sector has already been reeling from the adverse impact of the prevailing
liquidity crunch, a high inventory overhang, weak affordability and subdued demand conditions. The
coronavirus outbreak is expected to further exacerbate the weakness in the sector with sales and
collections expected to witness some moderation. However, reduced construction outflows, attributable
4.4%
Construction to a slowdown in project execution activity, are expected to limit the overall decline in the net cash flows,
(Dec-19)/
Finance 23% at least in the case of a short-term disruption. In case of a longer outbreak though, the impact on overall
including LRD economic activity is likely to be deeper and more sustained, which would, in turn, result in a more significant
2.4% (Mar-19) impact on developer cash flows and project execution abilities, giving rise to wider credit negative
implications. New home sales are likely to slow down as buyers will delay their purchase decisions. Labour
migration and lockdowns will also delay project execution, completion and sales, which would further
impact the cash flow of this borrower segment. With tougher refinancing conditions, this segment would
face higher delinquencies and loan losses.
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Expected
90+dpd3
Dec-19/ Mar-19
Level
The retail commercial space, mainly comprising mall operators, will be impacted in a major way due to its
closure across the country whereas the repercussions are likely to be marginal in the office space segment.
As rental expenses form a sizeable share (12-16%) of revenues for mall retailers, all tenants are likely to
negotiate a waiver/rebate of the rentals. Typically, rental expenses form a smaller proportion (1-2.5%) of
revenues for office space tenants. The revenue impact for office space tenants is expected to be limited
due to closure. Besides, better technological support is expected to limit operational disruption.
Mall operators generate almost their entire income from the lease rentals received from the tenants. In
the current circumstances, though the clauses in the lease agreements differ across properties and tenants,
as per ICRA’s analysis, multiplex operators and large anchor tenants typically have force majeure clauses
covering the waiver of rentals during the closure of operations. Additionally, as the revenue stream of all
the tenants will cease during the closure period, their financial position is expected to be under pressure.
Rental expenses form a sizeable share (12-16%) of the revenues of retailers. Therefore, all tenants are likely
to negotiate a waiver/rebate of the rentals. It is believed that the rental income of the mall operators will
be impacted in the near future. Even after the resumption of operations, footfalls are expected to be
muted. Therefore, the financial position of the tenants will continue to be stressed. Resultantly, the rental
income of the mall operators, which also comprises a portion of the revenue share, is expected to ramp up
gradually over the next few months. ICRA believes that though the debt-servicing ability of the mall
operators may come under stress in the near term, the presence of liquidity buffers i.e. debt service reserve
accounts (DSRA) in the form of free cash, liquid investments, and fixed deposits, will play a significant role
in managing the crisis. Entities with strong parent support and financial flexibility will also be able to
mitigate the near-term risks more effectively.
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Key regulatory changes
Covid-19 Regulatory Package
Rescheduling of Payments – Term Loans and Working Capital Facilities
With the approval of their respective boards, all commercial banks (including regional rural banks (RRBs), small finance banks (SFBs) and local area banks), co-operative banks,
all-India financial institutions (AIFIs), and NBFCs (including HFCs and microfinance institutions (MFIs)) are permitted to:
1) Allow a moratorium of three months on the payment of instalments (including interest) in respect of all their term loans/advances, which are falling due between March
1, 2020 and May 31, 2020. The repayment schedule for such loans, as also the residual tenor, would be shifted by three months after the moratorium period. Interest
shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
2) In respect of working capital facilities sanctioned in the form of cash credit/overdraft (CC/OD), the above institutions are permitted to allow a deferment of three months
on the payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the
deferment period.
The above moratorium will not result in an asset classification downgrade. While the moratorium extended by non-banks to borrowers facing cash flow constraints would
support their risk profile in the current scenario, the ability of these borrowers to spring back to the income-generation mode would depend on the extent of the lockdown
and the overall impact on their businesses. Thus, the asset quality profile, post the moratorium, would be crucial. ICRA believes that entities are expected to extend need-
based moratorium to their borrowers, which can support their inflows and liquidity to an extent.
Non-banks can also avail a moratorium for their term borrowings and working capital facilities from banks and financial institutions (FIs). Most entities carry liquidity for 1-2
months for debt servicing and other routine expenses. ICRA believes that entities (large and highly rated entities) may initially exhibit inertia to take the moratorium for their
borrowings. However, considering the uncertainties regarding the lockdown period and its impact on economic activity and collections may force many entities to conserve
liquidity and opt for a moratorium. Also, the moratorium is not applicable for market instruments like NCDs, etc, which account for a higher share of higher rated entities.
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Easing of Working Capital Financing
There has been a revision in the calculation for the drawing power by reducing the margins and/or by reassessing the working capital cycle for the CC/OD facilities of the entities.
This relief shall be available in respect of all such changes effected up to May 31, 2020 and shall be contingent on the lending institutions satisfying themselves that the same is
necessitated on account of the economic fallout from Covid-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review
regarding their justifiability on account of the economic fallout from Covid-19.
Other measures taken to augment system-level and non-bank liquidity
• Four simultaneous purchase and sale of Government securities (G-Secs) under open market operations (special OMOs or Operation Twist) during December and January
(December 23 and 30, 2019 and January 6 and 23, 2020) to ensure better monetary policy transmission
• Five long-term repo operations (LTROs) between February 17 and March 18, 2020 for one-year and three-year tenors amounting to Rs. 1.25 trillion of durable liquidity at
reasonable cost (fixed repo rate)
• Exemption on incremental credit disbursed by banks between January 31, 2020 and July 31, 2020 on retail loans for automobiles, residential housing and loans to micro,
small and medium enterprises (MSMEs) from the maintenance of CRR
• Two 6-month US dollar sell/buy swap auctions providing dollar liquidity amounting to USD 2.71 billion
Targeted TLTROs of Rs. 1.0 trillion
The impact of the recent sell-off in the equity markets was felt in the corporate bond markets as well, with the increase in the yields of corporate bonds since the first week of
March 2020, which was accelerated with the onset of the Covid-19 crisis. To address the flow of funds and improve the liquidity conditions in the debt capital markets, the RBI
has announced TLTROs of Rs. 1.0 trillion, whereby banks can use this funding to specifically purchase bonds and CP.
The key highlights of the facility are:
1. The duration of the TLROs will be up to three years.

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2. The funding will carry a floating rate linked to the repo rate and the allocation will be determined on a pro-rata basis in case of oversubscription.
3. The banks will have to utilise the funds within 15 working days of availing the facility.
4. Funding must be deployed in investment grade CP, bonds and NCDs over and above the level of investments in these instruments as on March 27, 2020.
5. Of the incremental investments, up to 50% to be through primary market issuance and the balance through secondary purchase from markets (including MFs and NBFCs).
6. Investments so acquired won’t be constrained by the large exposure framework and will be classified under held-to-maturity (HTM), thereby insulating them from mark-to-
market (MTM) risk.
In ICRA’s view, the TLTROs would provide much-needed help in cooling down the corporate bond yields. While there is no deferment of borrowings from the debt capital
markets, the measures announced by the RBI may make it easier for most companies to raise funds through fresh issuances. The TLTROs can aid stronger and well-managed
companies as they raise fresh funds at finer rates. The measures are expected to improve the trading volumes in the debt markets compared to the previous week as the
secondary market liquidity risks are alleviated to an extent.
On April 17, 2020, the RBI announced a second round of TLTRO aggregating to Rs. 50,000 crore which has been mandated to be invested in investment grade market instruments
of NBFCs with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs.
Cut in CRR by 100 bps and increase in MSF by 1%
Despite an overall surplus liquidity of ~Rs. 2.5-3.0 trillion, the RBI has proposed a CRR cut of 100 bps to 3.0% of net demand and time liabilities (NDTL) to improve the system-
wide liquidity across the banking system. Additionally, individual banks can now avail up to 3.0% of their NDTL (up from 2.0%) from the RBI under the MSF to meet their liquidity
requirements. The CRR cut is applicable for one year till March 26, 2021, and the enhanced MSF is available till June 30, 2020. Both measures can improve the liquidity of the
banking system by Rs. 1.37 trillion each or Rs. 2.74 trillion together.
In ICRA’s view, private banks generally do not have much of excess securities eligible for meeting the statutory liquidity ratio (SLR) requirements to meet any unanticipated
liquidity requirements. Amid concerns regarding the liquidity of private banks and some pickup in deposit withdrawals, both these measures shall aid in improving the liquidity
position of banks. With reduced CRR requirements, the negative carry for the banks on their CRR balances will also decline as such balances will now be deployed in interest-
earning assets.
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The liquidity infusion measures, along with a higher cut in the reverse repo rate, will nudge banks to push credit growth as the negative carry on their funds will increase, thereby
impacting their profitability. ICRA also expects a sharp cut of 50-60 bps in 1-year deposit rates in the near term, given the surplus liquidity in the banking system.
Priority sector lending – Lending by banks to NBFCs for on-lending
Bank credit to registered NBFCs (other than MFIs) for on-lending, up to 5% of the individual bank total priority sector lending, will be eligible for classification as a priority sector
under respective categories subject to the following conditions:
 Agriculture: On-lending by NBFCs for term lending component under agriculture will be allowed up to Rs. 1 million per borrower
 Micro & Small Enterprises: On-lending by NBFCs will be allowed up to Rs. 2 million per borrower
 Housing: Enhancement of the existing limits for on-lending by HFCs to Rs. 2 million per borrower from Rs. 1 million per borrower
The above was available till March 2020 when the same was first introduced in August 2019. However, the RBI has extended the window for this to March 2021.
Implementation of Indian Accounting Standards – RBI guidance
The RBI, via its notification dated March 13, 2020, provided guidance on certain specific prudential aspects (asset classification, provisioning and regulatory capital reporting) for
NBFCs reporting under the Indian Accounting Standards (Ind-AS). The background to this notification is to establish a standard and consistent reporting of financial statements
and other key regulatory and prudential disclosures. This is applicable for the preparation and reporting of financial statements from FY2020.
Floor on Expected Credit Loss
In case the provision requirement under the expected credit loss (ECL) is lower than the applicable prudential Income Recognition, Asset Classification and Provisioning (IRAC)
norms prescribed by the RBI for NBFCs, the difference would have to be appropriated from the net profit/loss to a separate impairment reserve account. The impairment reserve
would not be used for regulatory capital computation. Withdrawals from this reserve would be permitted only after RBI approval.
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NBFCs/HFCs under the I-GAAP regime typically had a conservative provisioning and write-off policy compared to the required IRAC norms, especially for NPAs (standard asset
provision was maintained at 0.4% as per norms). They further augmented their provisions under Ind-AS (by 0.7-1% of advances) as the securitised assets were treated as on-
balance sheet exposures. Some entities also provided additional buffers in their ECL model to factor in adverse macroeconomic issues (GDP growth, unemployment rates,
inflation, etc) and, therefore, in most cases the provisions carried are expected to be higher than the minimum required levels as per IRAC norms. For certain long tail assets
with adequate collateral and where the resolutions/recoveries are delayed, there is a possibility of the IRAC provisioning requirements being higher than the Ind-AS
requirements. ICRA, nevertheless, believes that there may not be any significant impact of the above on most HFCs.
Computation of Regulatory Capital and Regulatory Ratios
Broadly, the RBI has guided towards keeping the capital reporting similar to the way it was under I-GAAP by removing unrealised fair value gains on financial assets and gains on
change in the valuation of fixed assets, if any under Ind-AS, from the Tier I capital computation. Also, the treatment of securitised assets would be the way it was under the I-
GAAP regime. Detailed below are the changes proposed by the RBI:
1. Exclusion of unrealised gains on fair valuation of financial instruments from capital computation. However, net losses, if any, would have to be considered. NBFCs to
categorise financial assets measured at fair value into two categories:
A. Investments in shares of other NBFCs and in shares, debentures, bonds, etc, in Group companies that are required to be reduced while determining Tier I capital
B. Others (G-Secs, NCDs, CPs, pass-through certificates (PTCs), etc)
Netting may be done within the above two categories; net gains from one category cannot be set off against losses in the other category
2. Fair value gains, if any, on fixed assets can be treated as a part of the Tier II capital, within the prescribed limited, with a discount of 55%.
As most NBFCs/HFCs report exposures to subsidiaries at cost basis, there may not be any fair gain/losses on these investments. However, NBFCs/HFCs with other investments
(for meeting regulatory requirements or otherwise) would have fair value gains/losses. ICRA notes that fair value gains (unrealised) may vary across entities depending on their
investment profile and could be as high as 10% of the profit before tax (PBT). NBFCs/HFCs have been reporting to the RBI as per I-GAAP statements (which do not have fair value
gains, etc). Thus, the above is not expected to have a significant impact on most entities.
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3. General provisions to include 12-month ECL allowances for financial instruments and loss reserves so created are eligible for Tier II. Lifetime ECL can be reduced from the
risk-weighted assets (RWAs).
Stage 1 provisions under Ind-AS can be reckoned as a part of the Tier II capital vis-à-vis the whole of the standard asset provision (0.4%) as per I-GAAP. Entities with less than
0.4% provision on stage 1 assets may report a slightly lower Tier II capital (absolute). However, the netting of the lifetime ECL from RWAs would impact the overall capital
adequacy ratio (CAR; %) positively. The overall impact on the reported capital ratio for NBFCs/HFCs would, however, be quite insignificant.
4. Securitised assets with credit enhancements (CE) from NBFCs/HFCs and thus treated as on-B/s assets under Ind-AS would have 0% risk weight for capital adequacy
computation. NBFCs shall deduct the CE provided to these transactions equally from the Tier I and Tier II capital.
The clarity provided on the treatment of securitisation transactions for regulatory capital reporting under Ind-AS is a positive for the securitisation market as the above keeps
the securitised assets (on-b/s as per Ind-AS) outside the purview of capital computation by assigning a 0% risk weight. The treatment of the CE provided to these transactions
remains as it was under the I-GAAP regime. Thus, entities that were reporting CAR as per Ind-AS are likely to see some capital relief as the CE (for better rated entities) is typically
lower than the Tier I requirement of 10% and the overall capital required (15%) if these assets were to be treated as on-B/s exposures.
Governance Framework
The RBI emphasises the need for a board-approved policy to determine the asset classification (amortised cost, fair value through profit or loss (FVTPL), fair value through other
comprehensive income (FVOCI)) based on the entity’s business model and for arriving at the ECL model based on a proper rationale and adequate documentation for the same.
The RBI also insists on clearly and consistently defining the credit risk as per the internal credit risk management. The board would have to approve and document the rationale
for any changes in the same and any deviation from generally accepted practices (like accounts 90 days past due not being treated as impaired).
Most entities have defined credit risk categories – Stage 1 (0-30 days), Stage 2 (31-90 days) and Stage 3 (>90 days) – and other asset classification and reporting norms and are
not expected to make significant changes to the same.
Refinancing Facilities to NHB
Refinance facility of Rs. 10,000 crore has been extended to NHB on April 17, 2020 in order to aid the housing finance companies.
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SEBI consultation paper on review of regulatory framework for corporate bonds and debenture trustees
Background
According to the data received from the Trustee Association of India (TAI), it is observed that in past 5 years, around 2.3% of the issues have defaulted (93% of which are secured
debentures). Of this, debenture trustees (DTs) were able to successfully enforce the security for around 10% of the secured issues while recovery proceedings are pending at
different stages for around 60% of the issues. For around 30% of the issues, the recovery is pending due to non-communication from debenture holders.
In the case of manufacturing companies, a fixed charge is created in favour of the trustees on a pari-passu basis on the underlying tangible assets (namely plant and machinery)
for borrowing through debt and bank loans while in case of NBFCs/HFCs, a floating charge is created on the existing and future receivables, which are dynamic and intangible in
nature, and includes the entire balance sheet of the company. Since the charge is created on the entire balance sheet of the company, for any future issuances, a further charge
is created on a pari-passu basis on the entire assets (receivables) of the company. Such a pari-passu charge does not specify a certain identified portion of the assets to each
specific lender but treats all lenders as having the same claim (in the respective proportion of the amounts borrowed from them) on the assets charged.
While the security is enforced by the DT without any major complications in the case of manufacturing companies at the event of default (EoD), the same is not true in the case
of NBFCs due to the floating charge and absence of an identified security. The DT is faced with the enforcement of the security as they were unaware of the specificity of the
underlying security which was known only to the issuer since a floating charge was created on the entire assets. The floating charge, in case of NBFCs, gets crystallised only at
the time of default. This, therefore, leads to delays in various resolution processes in case of defaults.
Key Proposals Affecting NBFCs/HFCs
Creation of identified charge by NBFCs/HFCs: The NBFCs would have to create a charge on the identified assets that may include identified receivables, investments and cash
instead of a floating charge on the entire books of the NBFC/HFC. A debenture issued by an NBFC/HFC is to be treated as secured only on the creation of an identified charge. A
transition period of 3-5 years is proposed to be given to the NBFCs/HFCs.
Enhanced due diligence of identified assets and granular asset cover certificate: The asset cover certificate, duly certified by the statutory auditor, is proposed to be submitted
on a half-yearly basis instead of an annual basis. The asset cover certificate format shall be more granular, providing a list of identified assets/receivables, identified investments
or cash, etc, as security. If the quality of one or more of the identified receivables/assets deteriorates or the receivable/asset is prepaid, the issuer would have to identify further
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receivables to replace the bad/matured/prepaid ones and maintain the asset cover in accordance with the terms of the trust deed. The asset quality of the underlying assets is
to be monitored and cured as per the terms/benchmarks fixed at the time of the agreement.
Higher disclosure requirements: All covenants, including the accelerated payment covenants, whether given by way of a side letter or otherwise are to be incorporated in the
information memorandum (IM) by the issuer at the time of the issuance of the debentures and disclosed to the stock exchange. The issuer shall also be obligated to inform the
DT of such covenants for the monitoring of the same by the DT on behalf of the investors.
Possible impact on NBFCs/HFCs
Creation of identified charge could impact securitisation/assignment transactions: The assets provided for these transactions need to be seasoned to meet the minimum holding
period (MHP) requirements as well as various performance parameters (asset quality, etc) and other characteristics (geography, borrower profile, yield, etc) as required by the
investor. While the issuer would typically get time (30-60 days) to originate or create a charge after raising the NCD, once the charge is created against assets, those assets may
not be available for sell-downs. That said, if the banks also start demanding the creation of a specific charge for their loans, the identification of assets meeting various regulatory
and investor requirements for securitisation/assignment may become challenging for the issuers.
Increased operational and compliance requirements: The regular monitoring of the charge and the replacement of assets not complying with the trust deed with new assets are
expected to increase the operational and other compliance processes of NBFCs.
Restrict financial flexibility and thus lower financial leverage: Entities may opt to operate at a lower leverage in view of the strict asset identification requirements for secured
assets (more so if the bank also demands a fixed charge) as they may conservatively keep free assets for contingencies.
Likely increase in unsecured issuance and therefore, the cost of funding: Entities may focus on unsecured borrowings, which would free them from the various compliance
requirements that would be applicable for secured borrowings (on account of the fixed charge creation). This, however, may result in an increase in the borrowing cost. ICRA
expects that the companies are less likely to avoid venturing into shorter-tenure unsecured borrowings, to balance the impact of the higher cost, in view of the various liquidity
coverage requirements that would be applicable starting December 2020.
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21
Industry Trends
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Funding constraints accentuate housing credit slowdown
Exhibit 3: Growth in Housing Credit
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
HFCs and NBFCs 2.6 3.1 3.8 4.4 5.2 5.4 5.6 6.0 6.3 6.6 6.7 6.7 6.9 6.9 7.0 7.1
Scheduled Commercial Banks 4.8 5.7 6.6 7.9 9.1 9.1 9.6 9.9 10.3 10.5 11.1 11.5 12.2 12.5 13.2 13.6
Total Housing Credit 7.4 8.8 10.4 12.3 14.2 14.5 15.2 15.8 16.5 17.1 17.8 18.2 19.2 19.4 20.2 20.7
Growth
Credit Growth - HFCs and NBFCs 26% 20% 21% 17% 17% 20% 19% 19% 21% 21% 20% 14% 11% 4% 4% 6%
Credit Growth – SCBs 15% 18% 17% 18% 15% 11% 13% 14% 13% 16% 16% 17% 19% 19% 19% 18%
Overall Housing Credit Growth 19% 19% 18% 18% 16% 15% 15% 16% 16% 18% 17% 16% 16% 13% 13% 13%
% Share
HFCs and NBFCs 35% 35% 36% 36% 36% 37% 37% 38% 38% 38% 38% 37% 36% 35% 35% 34%
Banks 65% 65% 64% 64% 64% 63% 63% 62% 62% 62% 62% 63% 64% 65% 65% 66%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Amounts in Rs. lakh crore; Source: RBI, ICRA research
In line with the estimates as per ICRA’s last research report, the overall on-book housing loan portfolio growth of HFCs and NBFCs reduced significantly to 6% YoY for the period ended December
2019 owing to lower disbursements due to continued funding constraints for the sector and portfolio sales made by HFCs through securitisation. The pace of growth of banks continued to be
higher than HFCs, partly supported by portfolio buyouts, leading to overall market growth of 13% (16% for the same period last year). ICRA estimates that the total housing credit outstanding
stood at Rs. 20.7 lakh crore as on December 31, 2019. While ICRA expects the long-term prospects of the segment to remain good, disbursements in Q4 FY2020 are also expected to be lower
than usual due to the Covid-19 related lockdown, which impacted disbursements in March 2020 with housing credit growth likely to be 12-14% in FY2020. A shift in the market share was also
seen in the last one year between the key lender segments with the share of banks increasing to 66% as on December 31, 2019. This trend could continue for a couple of quarters. ICRA expects
the overall housing credit growth to moderate to 9%-12% in FY2021 (lower than last three years’ CAGR of 16%) due to Covid-19 induced slowdown.
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Significant slowdown in growth for HFCs
Exhibit 4: Trends in HFCs’ On-book Portfolio Growth and Composition
Mar-16 Mar-17 Mar-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

All HFCs The on-book portfolio growth for HFCs remained low at 7% YoY for the period
Home Loans 4.4 5.2 6.2 6.7 6.9 6.9 7.0 7.1 ended December 2019 due to the wait-and-watch policy adopted by most
Other Loans 2.0 2.7 3.3 6.73.7
3.7 3.8 3.9 4.0 4.1 lenders since September 2018. Further, the continued securitisation on the
Total Loans 6.4 7.7 9.6 10.4 10.8 10.9 11.0 11.1 home loan book led to a lower growth of 6% for this segment vis-à-vis YoY
Growth growth of 17% for the period ended December 2018. Some HFCs witnessed a
decline in their portfolios owing to a significant decline in fresh disbursements
Home Loans 20% 15% 22% 15% 11% 7% 4% 6%
and the high volumes of securitisation.
Other Loans 25% 31% 32% 22% 15% 9% 8% 9%
Overall Portfolio 21% 20% 25% 17% 12% 8% 5% 7%
Mortgages (housing loans and LAP taken together) accounted for around 32%
Share
of the overall securitisation volumes of Rs. 46,700 crore in Q3 FY2020. The
Home Loans 70% 67% 65% 64% 64% 64% 63% 63%
RBI, through its circular released on December 31, 2019, extended the
Other Loans 30% 33% 35% 36% 36% 36% 37% 37% dispensation on the relaxed MHP requirement for which the asset needs to
Total Loans 100% 100% 100% 100% 100% 100% 100% 100% reside on the books of the seller before it becomes eligible for securitisation
Small HFCs by another six months till June 30, 2020 vis-à-vis December 31, 2019 earlier
Home Loans 0.8 1.0 1.3 1.6 1.6 1.7 1.7 1.8 (originally relaxed on November 29, 2018 for a period of six months).
Other Loans 0.3 0.4 0.5 1.60.5
0.5 0.5 0.6 0.6 0.6
Total Loans 1.1 1.3 1.7 0.5 2.1 2.1 2.2 2.3 2.4 However, ICRA notes that loan sell-downs (securitisation/DA), which
Growth 2.1 supported the segment post the liquidity tightening in September 2018,
Overall Portfolio 28% 23% 30% 24% 24% 23% 18% 15% would also see a slowdown in view of the heightened credit risk. ICRA expects
Share minimal loan sell-down transactions in Q1 FY2021, with some revival in
Home Loans 79% 75% 73% 76% 76% 75% 75% 74% demand from H2 FY2021, depending on the segmental asset quality. In view
Other Loans 21% 25% 27% 24% 24% 25% 25% 26% of the above, the loan sell-downs in FY2021 are expected to be lower than the
volumes seen in FY2020.
Total Loans 100% 100% 100% 100% 100% 100% 100% 100%
Source: Financials/investor presentations of various HFCs, ICRA research; Amounts in Rs. lakh crore
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Affordable housing HFCs continue to grow faster than industry
Exhibit 5: On-balance Sheet Portfolio Growth of Affordable Housing HFCs
Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Affordable New
Home Loans 21,032 23,274 24,196 25,960 28,770 30,911 32,683 33,459 34,179 35,359 37,855 40,439
Other Loans 3,789 4,359 4,703 5,108 5,868 6,463 6,548 6,745 7,182 7,796 9,252 10,378
Total Loans 24,821 27,633 28,898 31,068 34,638 37,374 39,232 40,204 41,363 43,155 47,107 50,817
Growth (Annualised; %)
Home Loans 53% 21% 30% 31% 37% 33% 35% 29% 19% 14% 16% 21%
Other Loans 137% 30% 48% 46% 55% 48% 39% 32% 22% 21% 41% 54%
Total Loans 77% 23% 33% 34% 40% 35% 36% 29% 19% 15% 20% 26%
Source: Financials/investor presentations of various HFCs, ICRA research
The portfolio growth in the affordable segment slowed down as well, though robust demand and liquidity support from National Housing Bank (NHB) aided the YoY growth of 26% for
the period ended December 2019 in this segment. With the demand in this segment remaining intact, ICRA expects the segment to continue to grow at a faster pace than the overall
industry.
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Steady decline in share of housing loans in on-book portfolio
Exhibit 6: Trends in On-book Portfolio Mix of HFCs Exhibit 7: Comparison of On-book Portfolio Mix across HFC Groups as on December 31, 2019
100%
90% 18% 17% 18% 17% 22% 21% 21% Affordable new 80% 18% 1%
0%
80%
11% 13% 15% 14%
70% 15% 15% 15%
60% Small HFCs 74% 21% 4%1%
50%
40%
70% 69% 66% 68% Large HFCs 60% 14% 24% 1%
30% 63% 63% 62%
20%
10% All HFCs 62% 15% 21% 1%
0%
Mar-15 Mar-16 Mar-17 Sep-17 Mar-19 Sep-19 Dec-19
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Home Loans LAP Construction Finance Others Home Loans LAP Construction Finance Others
Amounts in Rs. crore; Source: Financials/investor presentations of various HFCs, ICRA research
Note: The data in Exhibits 6 and 7 is for a smaller set of HFCs than that used for Exhibit 4 as a detailed portfolio composition was not available for all the entities
• Owing to the higher securitisation of retail loan portfolios (mostly seasoned home loans) post the liquidity crisis, the share of on-book home loans for HFCs declined to 62% for the nine
months period ended December 31, 2019. Large HFCs had the maximum share of construction finance (including the LRD portfolio) among the HFC groups.
• Unlike their larger counterparts, the non-housing loan book of small HFCs mainly consists of LAP, which constituted 21% of the total loan book of small HFCs as on December 31, 2019.
Further, in terms of the borrower mix, small HFCs have a larger proportion of self-employed customers who tend to borrow against property for their business or personal needs, thus
providing small HFCs with better opportunities for originating LAP.
• However, as can be seen from Exhibit 7, new HFCs operating in the affordable segment have a negligible share in construction finance and remain focused on the home loan segment,
given the good growth potential and expectation of higher yields from this segment.
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Asset Quality
26
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Asset quality deteriorates due to deterioration in wholesale segment
Exhibit 8: Trends in Asset Quality Indicators
6.00%
5.5%
5.3% 5.3%
5.00% 5.1%
4.7%
4.5%
4.3%
4.00% 4.0%
3.3%
3.00% 3.0%
2.9%
2.7% 2.6% 2.6% 2.6%
2.3%
2.2%
2.00% 1.9% 1.9%
1.9% 1.8% 1.7%
1.6% 1.6%
1.4% 1.4%
1.2% 1.3% 1.3%
1.00% 1.1% 1.0% 1.0% 1.1%
0.9% 0.9%
0.8%
0.00%
Mar-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Gross NPA% All HFCs Gross NPA% Small HFCs Gross NPA % Large HFCs Gross NPA% Affordable -New HFCs
Amounts in Rs. crore

The overall GNPA (stage 3 assets as per revised Ind-AS June 2018 onwards) increased to 2.2% as on December 31, 2019 (1.6% as on March 31, 2019) due
to a deterioration across HFCs in the non-housing loan segment, namely the LAP and construction finance segments. Some HFCs also witnessed slippages
in the housing loan segment. The affordable segment also saw some deterioration in the asset quality indicators owing to slippages witnessed by a few
players.
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Exhibit 9: Trends in Segment-wise Asset Quality Indicators of HFCs
Mar-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Jun-19 Sep-19 Dec-19

Overall Gross NPA% - HFCs
All 0.7% 0.8% 1.2% 1.1% 1.3% 1.6% 1.8% 1.9% 2.1%
Large 0.7% 0.7% 1.0% 0.9% 1.0% 1.5% 1.6% 1.7% 1.9%
Small 1.0% 1.5% 2.3% 2.1% 2.9% 2.5% 2.9% 2.6% 3.0%
Affordable Housing - New Players 2.6% 3.1% 4.4% 4.0% 5.3% 4.7% 5.3% 4.3% 4.5%
Housing Loan Segment Gross NPA% - HFCs
All 0.5% 0.6% 0.8% 0.7% 1.0% 1.0% 1.1% 1.2% 1.4%
Large 0.4% 0.4% 0.5% 0.5% 0.6% 0.7% 0.8% 0.8% 0.9%
Small 1.2% 1.5% 2.1% 1.9% 2.5% 2.2% 2.9% 2.6% 3.1%
Affordable Housing - New Players (Excluding 1 Player) 0.8% 1.3% 1.8% 2.2% 2.6% 2.2% 2.5% 1.3% 1.3%
LAP Segment Gross NPA% - HFCs

All 1.0% 1.1% 1.3% 1.0% 1.1% 1.1% 1.4% 1.7% 1.8%
Large 0.5% 0.6% 0.7% 0.6% 0.8% 1.0% 1.3% 1.8% 1.9%
Small 2.2% 2.6% 3.2% 2.6% 2.5% 1.3% 1.4% 1.4% 1.6%
Affordable Housing - New Players (Excluding 1 Player) 0.7% 2.2% 2.5% 2.8% 2.6% 1.7% 2.1% 1.6% 1.9%
Construction Finance/ Corporate Loans Segment Gross NPA% - HFCs
All 1.7% 1.6% 2.3% 2.2% 2.2% 2.4% 3.5% 3.8% 4.4%
Large 1.8% 1.7% 2.3% 2.2% 2.2% 2.3% 3.6% 3.9% 4.4%
Small 0.2% 1.3% 2.1% 2.2% 2.1% 3.1% 2.6% 3.6% 4.8%
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Asset Quality Outlook
Exhibit 10: Segment-wise GNPA Projections for March 2021
GNPA as of Dec-19 Projections for March 2021
Housing 1.4% 1.8%

.
LAP 1.7% 2.7%
CF 5.0% 8.0%
Total 2.2% 3.2%
The asset quality could be under some pressure due to the challenging operating environment and the risk factors discussed above. In ICRA’s opinion, GNPAs in the HFC home loan segment
could increase to around 1.8% by March 2021 from the current level of 1.4%. As the bulk of the LAP and SME loans are extended to self-employed borrowers in the unorganised sector for
business needs, an adverse business environment accentuated by the Covid-19 related lockdown would impact the asset quality. Further, since a large section of the people are facing
movement and business-related restrictions and are postponing non-discretionary spending, this has led to a fall in economic activity. The cash flow and liquidity position of many borrowers
(individuals, small businesses and corporates) are likely to get affected, impacting their debt-servicing capability. The impact would be more prominent on self-employed borrowers, the
daily wage workforce, and small businesses (non-essentials). ICRA also notes that in the past, borrowers in this segment resorted to refinancing their loans with new lenders to manage the
liquidity pressure. This practice will reduce with more stringent credit appraisal processes being followed by the lenders. While the lifetime losses on secured LAP and SME loans are partly
limited by the underlying collateral and moderate LTV, a downward movement in property prices could expose lenders to higher levels of credit risk. Further, the asset quality in the
construction finance and LRD segments is also expected to deteriorate, leading to overall GNPAs of around 3.2-3.5% for FY2021 for HFCs compared to 2.2% as of December 2019. However,
the overall stressed assets could be higher by 20-40 bps if write-offs, repossessed assets (not included in NPAs) as well as written-off NPAs are included.
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30
Funding & Liquidity

Page
Increase in share of fixed deposits, bank loans and securitisation
Exhibit 11: Borrowing Profile Trends for all HFCs
100%
8% 8% 9% 9% 12% 12% 13% 13% 14%
90% 3% 4% 3% 2%
4% 3% 3% 2% 2% 2% 2%
4% 4% 3% 4% 3%
7% 4% 4%
80% 8% 10% 12% 6%
7% 7% 6% 5%
70% 14%
14% 14% 13% 13% 13% 14% 15% 14%
60%
50% 25% 20% 19% 23% 24%

23% 25% 25% 26%
40%
30%
20% 39% 42% 42%

38% 38% 38% 37% 36% 35%
10%
0%
Mar-16 Mar-17 Mar-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
NCD & Sub-Debt Bank Borrowings Fixed Deposits Commercial Paper NHB Refinance Others(including ECB) Off balance sheet
The share of CP borrowings remained at 5% of the overall borrowings of HFCs as on December 31, 2019 (7% as on December 31, 2018 and 10% as on March 31, 2018). The
CP borrowings have largely been refinanced by bank borrowings, the share of which increased to 26% as on December 31, 2019 from 24% as on March 31, 2019 and by
securitisation, the share of which increased to 14% of the overall borrowing mix from 12% during the same period.
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Fixed deposits, bank lines and NCDs form majority of incremental funding mix for HFCs in CY2019
Exhibit 12: Change in Incremental Borrowing Mix between CY2018 and CY2019
Bank Lines 28%

28%
NCD 22%
20%
Commercial Paper 12%

16%
NHB Refinance 4%
4%
Fixed Deposits 16%

12%
Securitisation 15%
17%
Others 3%
3%
0% 5% 10% 15% 20% 25% 30%
Incremental Funding Mix of HFCs CY2019 Incremental Funding Mix of HFCs CY2018
Note: Amount in Rs. crore; Source: AIMIN data, ICRA research
As per ICRA’s estimates, debt raised by HFCs remained largely stable at Rs. 4.7 lakh crore between CY2018 and CY2019. With a reduction in the dependence on short-
term funds, the share of incremental CP funding reduced to 12% in CY2019 from 16% in CY2018, refinanced largely by fixed deposits.
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Bond issuances continue to be dominated by top few players
Exhibit 13: Trend in Domestic Bond Issuance Volumes for HFCs Exhibit 14: Top HFC Domestic Bond Issuers by Volume
50000 Period CY2018 CY2019
40000 Entity
HDFC Limited 24,123 51,635
30000
LICHFL 21,718 31,746
20000 Indiabulls Housing Finance Limited 15,251 1,030
10000 Dewan Housing Finance Limited 18,444 -
Bajaj Housing Finance Limited 1,789 3,480
0
Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Piramal Capital and Finance Limited 760 4,317
HDFC + LICHFL Others PNB Housing Finance Limited 1,574 3,259
Amounts in Rs. crore; Source: Financials/investor presentations of various HFCs, AIMIN data, ICRA research
While the bond issuances in CY2019 increased by 8% vis-à-vis CY2018 levels, they were largely dominated by the top few players, namely HDFC Limited and LIC Housing Finance
Limited. These two entities together accounted for about 80% of the total HFC issuances in CY2019 vis-à-vis 47% for the prior period. Most of the other issuers were higher rated
entities with strong parentage or group support.
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CP issuances declining for HFCs
Exhibit 15: Trends in CP Issuance Volumes for HFCs Exhibit 16: Trends in CP Outstanding for HFCs
120000 120,000
100000 100,000
80000
80,000
60000
60,000
40000
40,000
20000
20,000
0
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 -
Sep-18
Sep-19
Sep-17
Apr-18
Feb-20
May-18
Aug-18
Jun-17
Jun-18
Jun-19
Jul-18
Jul-19
Mar-17
Mar-18
Mar-19
Dec-17
Jan-19
Jan-20
Dec-18
Nov-19
Dec-19
Oct-18
Oct-19
Large HFCs Small HFCs
Source: AIMIN data; Note: Amount in Rs. crore
CP issuances by HFCs have moderated in the recent past as entities try to keep their asset-liability mismatches at a low level. Further, the tighter regulations for liquid funds would
hinder borrowings via the short-term route.
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Loan sell-downs continue to support HFCs’ funding requirements; ECB approvals increase in H1 FY2020
Exhibit 17: Trends in Securitisation Volumes for HFCs Exhibit 18: Trends in ECB Approvals for HFCs
100000 1,600
90000 1,400
80000
1,200
70000
USD Million
60000 1,000
Rs crore
50000 800
40000
600
30000
400
20000
10000 200
0 -
FY2018 FY2019 Q3FY2019 Q4FY2019 Q1FY2020 Q2FY2020 Q3FY2020 Q3FY2018 Q4FY2018 Q1FY2019 Q2FY2019 Q3FY2019 Q4FY2019 Q1FY2020 Q2FY2020 Q3FY20
Source: AIMIN data; Note: Amount in Rs. crore
Post the squeeze in liquidity since September 2018, HFCs together raised significant funds through the sell-down of their loan assets under either the securitisation or the DA route. HFCs
continue to rely on the portfolio sell-down route as a tool for raising funds and managing liquidity. The sell-down market in India can be segregated into two types of transactions – rated
PTC transactions and unrated DA transactions (bilateral assignment of a pool of retail loans from one entity to another). The securitisation volumes witnessed a decline in 9M FY2020 mainly
due to the weakened credit profile of a few originators (that were traditionally large and active participants), which impacted their ability to securitise further. However, ICRA notes that
loan sell-downs (securitisation/DA), which supported the segment post the liquidity tightening in September 2018, would also witness a slowdown in view of the heightened credit risk.
ICRA expects minimal loan sell-down transactions in Q1 FY2021 with some revival in demand from H2 FY2021, depending on the segmental asset quality. In view of the above, the loan sell-
downs in FY2021 are expected to be lower than the volumes seen in FY2020.
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Tight credit flow keeps cost of funds elevated
Exhibit 19: Trend in Cost of Funds for HFCs
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
All HFCs 5-Year Average G-Sec
In line with the increasing spread across the corporate bond market, the spread between the cost of funds for HFCs and the 5-year G-Sec yield has widened over the last four quarters.
In addition to the tightened credit flow to the sector, the change in the funding mix arising from the declining share of CP borrowings has resulted in an elevated cost of funds for HFCs.
The share of lower-cost CP in the overall borrowing mix declined to 5% as on December 31, 2019 from 7% as on December 31, 2018.
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Liquidity gaps reduce with reduction in share of shorter-tenure borrowings
Exhibit 20: Liquidity Profile as on September 30, 2018 Exhibit 21: Liquidity Profile as on September 30, 2019
35% 32% 33%
45%
40%
30% 40%
26%
24% 35%
25%
30% 27%
20% 18% 18%
25% 22%
14% 14% 20%
15% 20%
15%
14%
9% 9% 9% 15% 12%
10% 7% 10%
6% 10% 6%
4% 4% 4%3% 4%
5% 2% 5% 2%2% 1%3%
0% 0%
<1 <2 <3 <6 <1 year 1-3 3-5 > 5 years <1 month <2 <3 <6 < 1 year 1-3 years 3-5 years >5 years
month months months months years years monhts months months
Advances + Investements Borrowings + CL Advances + Investements Borrowings + CL
Source: Structural liquidity statements of ICRA rated HFCs, ICRA research

Note: Up to 1 year, the gaps are on a cumulative basis. Further, the liquidity position as of Sep-18 has been arrived at using data for 17 HFCs while the position as of Sep-19 consolidates data for 23 entities. The structural
liquidity statements include behavioral assumptions such as prepayment trends, rollover of bank lines and fixed deposits by some HFCs.
ICRA analysed the structural liquidity statements of 17 entities as on September 30, 2018 and 23 entities as on September 30, 2019, accounting for over 85% of the HFC portfolio. With
the decline in the share of CP borrowings in the overall funding mix, the liquidity profile of HFCs in the short-term buckets has improved and the gaps in the up to 1-year bucket reduced
to 2% as on September 30, 2019 (4% as on March 31, 2019 and 6% as on September 30, 2018). Further, as most of the HFCs started building on-balance sheet liquidity buffers for
meeting debt obligations, the gaps in the less-than-1-year buckets have also reduced. However, the HFCs would continue to require additional funds for making incremental
disbursements.
37
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38
Capitalisation & Profitability

Page
Adequate capitalisation indicators; NHB’s proposed guidelines a positive from risk perspective
Exhibit 22: Gearing for HFCs Exhibit 23: Capitalisation Indicators for HFCs
10.0
9.0
8.0
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-19 Sep-19 Dec-19
7.0 Net Worth/On-balance
6.0 Sheet Advances
5.0 All HFCs 11.8% 11.6% 11.8% 12.7% 15.2% 15.6% 15.4% 16.2%
4.0 Small HFCs 12.3% 10.9% 11.5% 10.8% 13.3% 13.6% 13.7% 13.6%
3.0 Large HFCs 11.7% 11.8% 11.3% 13.0% 15.6% 16.0% 15.7% 16.7%
2.0
Median CRAR
1.0
All HFCs 18.4% 19.2% 17.3% 18.9% 18.7% 18.3% 18.3% 18.3%
-
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-19 Sep-19 Dec-19 Small HFCs 15.4% 19.3% 19.7% 18.9% 19.6% 20.3% 20.0% 19.0%
All HFCs Large HFCs Small HFCs Large HFCs 18.4% 19.2% 19.3% 17.6% 22.8% 19.0% 19.6% 23.8%
Source: Quarterly financials of HFCs, ICRA research; Calculation excludes data for DHFL and Reliance Home Finance
• The aggregate on-balance sheet gearing, though decreased to 5.6 times as on December 31, 2019, remained largely at a similar level of 6.1 times as on March 31, 2019
• Despite the high leverage of many HFCs, the reported capital adequacy remained good with a median CRAR of 18.3% as on December 31, 2019, supported by the relatively lower risk
weights for home loans and commercial real estate loans for residential projects
• While the overall capitalisation indicators are comfortable for the sector, the economic capitalisation indicators for some HFCs weakened due to the increased vulnerability of the
wholesale book, leading to higher capital requirements
39
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Some moderation in profitability indicators
Exhibit 24: Trends in Return on Assets for HFCs Exhibit 25: Trends in Income Break-up for HFCs
3.50%
3.00%
FY2017 FY2018 FY2019 H1 FY2020 9M FY2020
2.50%
Net Operating Income 3.50% 3.30% 3.00% 2.90% 2.70%
2.00%
Non-interest Income 0.50% 0.40% 0.60% 0.90% 1.70%
1.50%
Operating Expenses 0.90% 0.80% 0.60% 0.60% 0.60%
1.00%
One-time Income4 NA 0.45% 0.10% 0.30% 3.90%
0.50%
PBT/ATA 3.10% 2.90% 3.00% 2.70% 4.40%
0.00%
FY2016 FY2017 FY2018 FY2019 H1FY2020 9MFY2020
PAT 2.10% 2.10% 2.00% 2.10% 3.90%
All HFCs Small HFCs Large HFCs All HFCs excluding HDFC RoE 22.00% 19.00% 16.00% 15.00% 28.00%
Source: Quarterly financials of HFCs, ICRA research; Calculation excludes data for DHFL and Reliance Home Finance
The overall profitability indicators of HFCs improved because of the non-interest income booked by a large HFC with an RoE of 28%. Excluding the large player, the RoE moderated to 12.6%
in 9M FY2020 from 13.7% in FY2019 owing to some compression in the interest spreads. Going forward, the NIMs are expected to remain stable as the cost of funds could moderate.
However, a slowdown in growth is likely to impact the operating expense ratios. While the profitability indicators for FY2020 are likely to remain rangebound between 13% and 15%, (partly
supported by the upfront income booking on assignments), a prolonged slowdown in growth and the Covid-19 related impact on the asset quality could lead to an increase in the credit
costs. This could lead to a moderation in the profitability indicators for FY2021.
4 This includes the one-time profit on the sale of investments booked by a few HFCs
40
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Annexure 2: Consolidated Finan of ALL HFCs- Quarterly Trends
41
Quarterly Performance Trend

Page
Exhibit 26: Consolidated Financials of All HFCs
No. of Months 3 3 3 3 3 3 3 3 3 3 3 3
Interest Income 21,187 20,780 21,175 22,230 24,655 25,051 26,466 28,057 27,930 25,327 24,634 24,710
Interest Expenses 13,631 14,072 14,550 14,949 15,681 17,190 18,887 19,651 19,643 18,169 18,089 17,905
Net Interest Income 7,556 6,708 6,625 7,281 8,975 7,892 7,580 8,406 8,287 7,158 6,885 6,789
Other Income 2,393 336 1,212 4,978 806 1,438 2,439 1,066 2,272 3,095 3,519 10,191
Total Income 9,949 7,044 7,837 12,260 9,781 9,329 10,019 9,472 10,558 10,253 10,403 16,972
Operating Expenses 1,884 1,718 1,758 2,016 2,237 2,196 2,779 2,775 6,044 3,120 3,241 1,447
PBT 8,065 5,327 6,079 10,148 7,363 7,140 7,284 6,701 4,497 7,137 7,204 11,600
PAT 6,261 3,590 4,300 8,207 5,464 5,051 5,242 4,776 3,291 5,466 6,216 10,346
Key Ratios
Income from Operations/ Average Assets 10.6% 10.0% 9.8% 9.8% 10.2% 9.7% 9.9% 10.1% 9.9% 9.2% 9.3% 9.3%
Interest Expenses/ Average Assets 6.8% 6.8% 6.8% 6.6% 6.5% 6.7% 7.0% 7.1% 6.9% 6.6% 6.9% 6.8%
Net Interest Income/ Average Assets 3.8% 3.2% 3.1% 3.2% 3.7% 3.1% 2.8% 3.0% 2.9% 2.6% 2.6% 2.6%
Other Income/ Average Assets 1.2% 0.2% 0.6% 2.2% 0.3% 0.6% 0.9% 0.4% 0.8% 1.1% 1.3% 3.9%
Total Income/ Average Assets 5.0% 3.4% 3.6% 5.4% 4.1% 3.6% 3.7% 3.4% 3.7% 3.7% 3.9% 6.4%
Operating Expenses (including credit costs)/
0.9% 0.8% 0.8% 0.9% 0.9% 0.6% 0.6% 0.7% 0.7% 0.6% 0.6% 0.5%
Average Assets
PBT/ Average Assets 4.0% 2.6% 2.8% 4.5% 3.0% 2.8% 2.7% 2.4% 1.6% 2.6% 2.7% 4.4%
PAT/ Average Assets 3.1% 1.7% 2.0% 3.6% 2.3% 2.0% 2.0% 1.7% 1.2% 2.0% 2.4% 3.9%
PAT/ Average Net Worth 29.9% 16.4% 19.2% 35.0% 20.2% 16.6% 16.0% 13.6% 9.0% 14.9% 17.2% 27.7%
Gearing 8.1 8.1 8.5 8.0 7.2 7.0 6.8 6.5 6.4 6.0 6.0 5.6
Cost of Funds 8.1% 7.9% 7.9% 7.7% 7.7% 8.0% 8.3% 8.4% 8.3% 8.0% 8.3% 8.3%
Source: Financial statements/investor presentations of various HFCs; Amount in Rs. crore; DHFL and Reliance Home Finance have not been included Jun-19 onwards; GRUH Finance has not been included Q2 FY2020 onwards
42
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Exhibit 27: Consolidated Financials of Large HFCs – Quarterly Trends
No. of Months 3 3 3 3 3 3 3 3 3 3 3 3
Interest Income 18,479 18,150 18,470 19,281 21,080 21,520 22,869 23,943 23,679 21,034 20,819 20,509
Net Interest Income 6,507 5,751 5,642 6,226 7,436 6,514 6,461 7,085 6,952 5,819 5,596 5,506
Other Income 2,348 296 1,117 4,863 784 1,350 2,174 844 2,022 2,896 3,268 9,902
Total Income 8,855 6,048 6,759 11,089 8,220 7,864 8,635 7,929 8,974 8,715 8,865 15,405
Operating Expenses 1,551 1,317 1,317 1,548 1,652 1,557 2,007 1,912 5,283 2,361 2,335 890
PBT 7,304 4,730 5,441 9,480 6,505 6,308 6,627 6,017 3,691 6,354 6,530 10,804
PAT 5,784 3,205 3,890 7,769 4,941 4,504 4,776 4,309 2,702 4,895 5,695 9,755
Key Ratios
0.9% 0.7% 0.7% 0.8% 0.8% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4%
Average Assets
Gearing 8.1 8.0 8.4 8.0 7.2 7.0 6.7 6.4 6.4 5.9 5.9 5.5
Cost of Funds 8.1% 7.9% 7.9% 7.7% 7.6% 8.0% 8.3% 8.4% 8.3% 7.9% 8.4% 8.2%
Source: Financial results of HFCs, ICRA research; Note: Amounts in Rs. crore; Q1 FY2019 onwards, results are as per Ind-AS; The above table includes data for the following companies – HDFC Limited, Dewan Housing, LIC Housing Finance, PNB
Housing Finance, Indiabulls Housing Finance; DHFL has not been included Jun-19 onwards
43
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Exhibit 28: Consolidated Financials of Small HFCs – Quarterly Trends
No. of Months 3 3 3 3 3 3 3 3 3 3 3 3
Interest Income 2,708 2,630 2,705 2,949 3,576 3,531 3,597 4,114 4,251 4,293 3,815 4,201
Net Interest Income 1,059 967 993 1,055 1,539 1,377 1,119 1,321 1,334 1,339 1,289 1,283
Other Income 45 40 96 116 22 87 265 222 250 199 250 289
Total Income 1,105 1,007 1,088 1,170 1,561 1,465 1,384 1,543 1,584 1,538 1,538 1,567
Operating Expenses 333 400 441 468 585 483 497 863 761 759 906 557
PBT 768 595 626 668 859 832 656 684 807 783 675 796
PAT 477 385 411 438 523 547 466 467 589 571 521 592
Key Ratios
1.4% 1.7% 1.7% 1.7% 2.0% 1.5% 1.4% 1.4% 1.5% 1.4% 1.5% 1.3%
Average Assets
Gearing 8.5 8.5 8.5 8.5 7.1 7.1 7.1 7.3 6.8 6.8 6.7 6.2
Cost of Funds 8.1% 8.0% 8.0% 8.2% 8.1% 8.0% 8.4% 8.5% 8.4% 8.1% 7.9% 8.6%
Source: Financial results of HFCs, ICRA research; Note: Amount in Rs. crore; The above table includes data for the following companies – Can Fin Homes, Aadhar Housing Finance, GIC Housing Finance, GRUH Finance (not included Q2 FY2020
onwards), ICICI Home Finance, L&T Housing Finance, PNB Housing Finance, Sundaram BNP Paribas Home Finance Limited, Repco Home Finance Limited, Tata Capital Housing Finance, Reliance Home Finance (March 2017 onwards but not included
Q1 FY2020 onwards), Aavas Financiers Limited, Bajaj Housing Finance Limited and Muthoot Homefin Limited
44Page
45
Market Dynamics
Page
Mortgage penetration levels continue to increase steadily
Exhibit 29: Trends in Mortgage Penetration in India Exhibit 30: Housing Credit as % of GDP for Various Countries
12.0%
10.1% 10.0% 10.3% 10.3%
9.9%
10.0% 9.4%
9.0%
8.4%
7.8%
8.0%
6.0%
4.0%
2.0%
0.0%
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-19 Sep-19 Dec-19
Housing Credit as proportion of GDP (%)
Source: ICRA research, HOFINET; Exhibits 29 and 30 show the total amount of home mortgage loans outstanding at the end of the year as a percentage of GDP (current)
46
Page
Share of top 5 players increases due to slowdown in disbursements by a few large HFCs
Exhibit 31: Market Share of Key Players
4% 4% 4% 3% 3% 3% 1% 1.2% 1.2%
3% 2.0% 2.1%
1%
3%
1% 2% 2% 2% 3% 3% 4.0% 4.0% • Notwithstanding the large number of participants in the housing
3% 3% 3% 4% 3% 3%
2% 2% 2% 3% 3% 2.7% 2.8% finance market, the sector remains concentrated with the top 5 players
2% 2% 2% 3% 4% 2.6% 2.4%
2% 2% 2% 3% 3%
4% 4% 5% 4.9% 4.7% – State Bank of India (SBI), the HDFC Group (HDFC Limited, HDFC Bank),
5% 5% 4% 5%
5% 5% 5.0% 5.1% LIC Housing Finance Limited (LICHFL), the ICICI Group and Axis Bank –
5% 5% 5.0%
10% 10% 9%
clearly dominating the market.
8% 8% 8% 9.9% 9.9% 9.9%
• With a slowdown in disbursements by some large players, the share of
8% 9% 9% the top 5 players increased further to 59.4% as on December 31, 2019
9% 9% 10% 7.7% 7.6% 7.6%
(58.2% s on March 31, 2019) with support from portfolio buyouts.
17% 16% 16% 15% 16.2% 15.4% 15.5%

16% 16%
20% 19% 20% 20% 19% 21% 21% 21% 21%
* The Herfindahl-Hirschman Index (HHI) is used as a measure of market

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-19 Sep-19 Dec-19 concentration. It is calculated by squaring the market share of each firm competing
in a market, and then summing up the resulting numbers, and can range from close
SBI Group HDFC Group ICICI Group LIC HFL Axis Bank PNB Group
to 0 to 10,000.
BOB Canara Bank group Indiabulls IDBI Bank Dewan Housing
Source: Investor presentations of various lenders, ICRA research

47
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Distribution of ICRA ratings
48
ICRA Ratings in the Sector

Page
Exhibit 32: Distribution of ICRA’s Long-term Ratings for HFCs as on April 08, 2020
6
5 5
5
4 4
4
3
3
2
2
1 1 1
1
0 0 0
0
Source: ICRA
• Currently, ICRA has ratings outstanding for 31 HFCs, which together account for over 90% of the HFC mortgage market. Among these, ICRA has long-term ratings outstanding for 26
HFCs (refer Exhibit 34).
• The median long-term rating for HFCs is high in the [ICRA]AA category, reflecting the strong parentage of many HFCs and the relatively higher safety associated with housing as an
asset class.
• In FY2020, five entities were downgraded owing to the stress faced by HFCs with a higher share of the construction finance portfolio while one entity in the retail affordable housing
segment was upgraded. In April 2020, one HFC was downgraded. Additionally, a Negative outlook has been assigned to seven entities.
49
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Exhibit 33: List of Rating Revisions in FY2020 and YTD FY2021
Company Name Previous Rating Rating Post Revision Month of Action

Dewan Housing Finance Corporation Limited [ICRA]A2+@ [ICRA]A3+@ Apr-19
Reliance Home Finance Limited [ICRA]A2@ [ICRA]A4@ Apr-19
Dewan Housing Finance Corporation Limited [ICRA]A3+@ [ICRA]A4@ May-19
Reliance Home Finance Limited [ICRA]A4@ [ICRA]D May-19
PNB Housing Finance Limited [ICRA]AA+(Stable) [ICRA]AA+(Negative) May-19
Dewan Housing Finance Corporation [ICRA]A4@ [ICRA]D Jun-19
Piramal Capital and Housing Finance Limited [ICRA]AA+ (Negative) [ICRA]AA (Negative) Jun-19
Edelweiss Housing Finance Limited [ICRA]AA (Negative) [ICRA]AA- (Negative) Jun-19
ManiBhavnam Home Finance Limited [ICRA]BBB-(Stable) [ICRA]BBB-(Negative) Aug-19
Indiabulls Housing Finance Limited [ICRA]AAA& [ICRA]AA+& Aug-19
L&T Housing Finance Limited [ICRA]AAA(Stable) [ICRA]AAA(Negative) Aug-19
GIC Housing Finance Limited [ICRA]AA+(Stable) [ICRA]AA+(Negative) Sep-19
IIFL Housing Finance Limited [ICRA]AA(Stable) [ICRA]AA(Negative) Nov-19
Aptus Value Housing Finance Limited [ICRA]A(Stable) [ICRA]A+(Stable) Nov-19
Magma Housing Finance Limited [ICRA]AA-(Stable) [ICRA]AA-(Negative) Dec-19
Indiabulls Housing Finance Limited [ICRA]AA+(Negative) [ICRA]AA(Stable) Feb-20
PNB Housing Finance Limited [ICRA]AA+(Negative) [ICRA]AA(Negative) Apr-20
Indiabulls Housing Finance Limited [ICRA]AA(Stable) [ICRA]AA(Negative) Apr-20
Source: ICRA
50
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List of ICRA rated HFCs as on April 8, 2020
Exhibit 34: ICRA Rated HFCs
c
S. No. Company Issuer Rating Long Term Outlook Medium Term Short Term
1 Aadhar Housing Finance Limited [ICRA]A1+
2 Aditya Birla Housing Finance Limited [ICRA]AAA Stable [ICRA]A1+
3 Aptus Value Housing Finance India Limited [ICRA]A+ Stable
4 Motilal Oswal Home Finance Limited [ICRA]A+ Stable [ICRA]A1+
5 Aavas Financiers Limited [ICRA]A+ Positive [ICRA]A1+
6 Can Fin Homes Limited [ICRA]AA+& MAAA& [ICRA]A1+
7 Dewan Housing Finance Corporation Limited [ICRA]D
8 Edelweiss Housing Finance Limited [ICRA]AA- Negative [ICRA]A1+
9 GIC Housing Finance Limited [ICRA]AA+ Negative [ICRA]A1+
10 Home First Finance Company Limited [ICRA]A+ Stable [ICRA]A1+
11 Housing Development Finance Corporation Limited IrAAA(Stable) [ICRA]AAA Stable MAAA(Stable) [ICRA]A1+
12 ICICI Home Finance Company Limited [ICRA]AAA Stable MAAA(Stable) [ICRA]A1+
13 Indiabulls Housing Finance Limited [ICRA]AA Negative [ICRA]A1+
14 India Infoline Housing Finance Limited [ICRA]AA Negative [ICRA]A1+
15 India Shelter Finance Corporation Limited [ICRA]A Stable
16 Indo Star Home Finance [ICRA]A1+
17 J M Financial Home Loans [ICRA]AA Stable
18 L&T Housing Finance Limited [ICRA]AAA Negative MAAA(Stable) [ICRA]A1+
19 LIC Housing Finance [ICRA]A1+
20 Magma Housing Finance [ICRA]AA- Negative
21 PNB Housing Finance Limited [ICRA]AA Negative
22 Muthoot Home Fin Limited [ICRA]A1+
51
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c
S. No. Company Issuer Rating Long Term Outlook Medium Term Short Term
23 Piramal Capital and Housing Finance Limited [ICRA]AA Negative [ICRA]A1+
24 ManiBhavnam Home Finance Limited [ICRA]BBB- Negative
25 Reliance Home Finance Private Limited [ICRA]D
26 Religare Housing Development Finance Corporation [ICRA]BB @ [ICRA]A4@
27 Repco Home Finance Limited [ICRA]AA- Stable [ICRA]A1+
28 Shubham Housing Development Finance Company Limited [ICRA]A- Stable
29 Sundaram Home Finance Limited [ICRA]AA+ Stable MAA+(Positive) [ICRA]A1+
30 Tata Capital Housing Finance Limited [ICRA]AAA Stable [ICRA]A1+
31 Vastu Housing Finance Corporation Limited [ICRA]A Stable
Source: ICRA
@-Under rating watch with negative implications
&-Under rating watch with developing implications
52
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53
ANNEXURE
Page
Exhibit 35: Home Loan Interest Rates
Women Women Others Women Others Women Others

Others
Borrowers Borrowers Borrowers Borrowers
MCLR Spread Lowest Spread Lowest MCLR Spread Lowest Spread Lowest Spread Lowest Spread Lowest MCLR Spread Lowest Spread Lowest
MCLR
(one over Interest over Interest (one over Interest over Interest over Interest over Interest (one over Interest over Interest
(one year)
year) MCLR Rate MCLR Rate year) MCLR Rate MCLR Rate MCLR Rate MCLR Rate year) MCLR Rate MCLR Rate
Offered Offered Offered Offered Offered Offered Offered Offered
As on June 07, 2019 As on October 15, 2019 As on January 16, 2020 As on April 8, 2020
Banks
7.80%5Error!
State Bank of India 8.45% 0.10% 8.55% 0.15% 8.60% 8.05%5 0.10% 8.15% 0.15% 8.20% Bookmark not 0.15% 7.95% 0.10% 7.90% 7.05%5 0.15% 7.20% 0.10% 7.15%
defined.
5.15%Error!
ICICI Bank 8.75% 0.05% 8.80% 0.05% 8.80% 5.15%6 3.50% 8.65% 3.50% 8.65% Bookmark not 3.50% 8.65% 3.50% 8.65% 4.40% 3.70% 8.10% 3.70% 8.10%
defined.
5.15%Error!
Axis Bank 8.75% 0.15% 8.90% 0.15% 8.90% 5.40%7 3.45% 8.85% 3.45% 8.85% Bookmark not 3.40% 8.55% 3.40% 8.55% 5.15% 3.40% 8.55% 3.40% 8.55%
defined.
Punjab National Bank 8.45% 0.20% 8.65% 0.25% 8.70% 7.80%8 0.15% 7.95% 0.30% 8.10% 7.80% 0.15% 7.95% 0.10% 7.90% 7.05% 0.15% 7.20% 0.15% 7.20%
HFCs
HDFC Limited 8.60% 8.65% 8.35% 8.40% 8.00% 8.00% 8.00% 8.00%
LIC Housing Finance
8.80% 8.95% 8.60% 8.85% 8.20%9 8.10% 8.20% 8.10%
Limited
PNB Housing Finance
8.90% 8.90% 8.90% 8.90% 8.90% 8.90% 8.90% 8.90%
Limited
Indiabulls Housing 8.80% 8.80% 8.80% 8.80% 8.99% 8.99% 8.99% 8.99%
5 External benchmark rate (EBR) = Repo rate +2.65%

6 Repo rate at 5.15%
7 Repo rate at 5.40%
8 Repo linked lending rate (RLLR): 7.80%
9 Data for LIC Housing Finance has been taken from deal4loans.com
54 Page
Finance Limited
Source: Financial statements/investor presentations of various HFCs; Amount in Rs. crore

55
Page
Annexure: Trends in number of HFCs operating
Exhibit 36: Number of HFCs Registered with NHB
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Mar-15 Jul-16 Jun-17 Mar-18 Oct-18 Dec-18 Feb-19 May-19 Sep-19 Dec-19 Mar-20
Non-deposit
22 23 23 30 33 37 39 44 46 58 67 74 79 79 79 80 83 83 83
Accepting
Deposit Accepting 20 20 20 22 19 19 18 18 18 18 18 18 18 18 18 18 18 18 18
Total HFCs 42 43 43 52 52 56 57 62 64 76 85 92 97 97 97 98 101 101 101
Source: NHB
As of December 2019, the housing finance market had many players including 101 HFCs. The number of new entrants has been increasing continuously over the last decade. Most new entrants
in the last two years have focused on the relatively underpenetrated low ticket affordable housing and self-employed segments.
56
Page
Annexure: List of Companies used for HFCs’ Consolidated Annual Data
1. Aavas Financiers Limited (erstwhile AU Housing Finance Limited) 31. Shubham Housing Development Finance Company Private Limited
2. Aadhar Housing Finance Ltd. 32. Sundaram BNP Paribas Home Finance
3. Aptus Value Housing Finance India Limited 33. Tata Capital Housing Finance Limited
4. Aditya Birla Housing Finance Limited 34. Ummeed Housing Finance Limited
5. Aspire Home Finance Corporation Limited 35. Repco Home Finance Limited
6. Can Fin Homes Limited 36. Vastu Housing Finance Corporation Limited
7. Capital First Home Finance Limited
8. Dewan Housing Finance Corporation Ltd. (till FY2019)
9. Edelweiss Housing Finance limited
10. GIC Housing Finance limited
11. GRUH Finance Limited
12. Home First Finance Company limited
13. Housing Development Finance Corporation ltd
14. ICICI Home Finance Company Ltd.
15. India Infoline Housing Finance Limited
16. Indiabulls Housing Finance Limited
17. India Shelter Finance Corporation Limited
18. L&T Housing Finance Limited
19. LIC Housing Finance Limited
20. Magma Housing Finance Limited
21. Mahindra Rural Housing Finance Ltd
22. MAS Rural Housing and Mortgage Finance Limited
23. Manappuram Home Finance Limited
24. Muthoot Housing Finance Company Limited
25. Muthoot Home Fin Limited
26. Micro Housing Finance Corporation Ltd.
27. PNB Housing Finance Limited
28. Art Affordable Housing Finance(India) Limited
29. Reliance Home Finance Limited
30. Religare Housing Development Finance Corporation Limited
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Page
Annexure: List of HFCs for Consolidation of Quarterly Financials
1. Can Fin Homes Limited
2. Aadhar Housing Finance Ltd.
3. Dewan Housing Finance Corporation Ltd. (till Q4FY2019)
4. GIC Housing Finance Ltd.
5. GRUH Finance Ltd.
6. Housing Development Finance Corporation Ltd.
7. ICICI Home Finance Company Ltd.
8. Indiabulls Housing Finance Limited
9. L&T Housing Finance Limited
10. LIC Housing Finance Ltd.
11. PNB Housing Finance Ltd.
12. Repco Home Finance Ltd
13. Sundaram BNP Paribas Home Finance Ltd
14. Tata Capital Housing Finance Limited Ltd
15. Reliance Home Finance Limited (till Q3FY2019)
16. Motilal Oswal Home Finance
17. Aavas Financiers Limited
18. Muthoot Home Fin Limited
19. Magma Housing Finance Limited
20. Bajaj Housing Finance Limited
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Page
Annexure: Definition of HFC Groups used for this Report
Exhibit 37: Sample Entities
Category HFCs included

Housing Development Finance Corporation, Dewan Housing Finance Corporation, Indiabulls Housing Finance Limited, LIC Housing Finance Limited, PNB
Large HFCs
Housing Finance Limited (AUM > Rs. 50,000 crore as on March 31, 2018)
Aavas Financiers Limited, Aadhar Housing Finance Limited (merged with DHFL Vysya Housing Finance Ltd), Aptus Value Housing Finance India Limited, Art
Affordable Housing Finance, Aditya Birla Housing Finance Limited, Aspire Home Finance Corporation Limited, Can Fin Homes Limited, Capital First Home
Finance Limited, Edelweiss Housing Finance Limited, GIC Housing Finance Ltd, GRUH Finance Ltd, Home First Finance Company Limited, ICICI Home Finance
Company Ltd, India Infoline Housing Finance Limited, Reliance Home Finance, Tata Capital Housing Finance, Mahindra Housing Finance, MAS Rural Housing
Small HFCs and Mortgage Finance, Magma Housing Finance, Manappuram Home Finance, Svatantra Micro Housing Finance Corporation Limited, Muthoot Home Fin,
Muthoot Housing Finance Company, Indo-Star Home Finance, Repco Home Finance, Fullerton India Home Finance, Sundaram BNP Paribas Home Finance,
India Shelter Finance Corporation Limited, L&T Housing Finance Limited, Vastu Housing Finance, Religare Housing Development Finance, Shriram Housing
Finance, Shubham Housing Development Finance Company, Ummeed Housing Finance Limited , Bajaj Housing Finance Limited(AUM < Rs. 50,000 crore
as on March 31, 2018)
Aavas Financiers Limited, Aadhar Housing Finance Limited (merged with DHFL Vysya Housing Finance Ltd), Aptus Value Housing Finance India Limited, Art
Affordable Housing Finance, Motilal Oswal Home Finance, Home First Finance Company Limited, Mahindra Housing Finance, MAS Rural Housing and Mortgage
Affordable New Finance, Magma Housing Finance, Manappuram Home Finance, Svatantra Micro Housing Finance Corporation Limited, Muthoot Home Fin, Muthoot Housing
Finance Company, India Shelter Finance Corporation Limited, Vastu Housing Finance, Religare Housing Development Finance, Shriram Housing Finance,
Shubham Housing Development Finance Company , Ummeed Housing Finance Limited
All HFCs Small and large HFCs
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Indian Mortgage Finance Market PDF

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INDIAN MORTGAGE

Karthik Srinivasan Supreeta Nijjar Manushree Saggar Deeksha Agarwal

karthiks@icraindia.com supreetan@icraindia.com manushrees@icraindia.com deeksha.agarwal@icraindia.com

1 Non-banks – Non-banking financial companies (NBFCs) and HFCs

Exhibit 2: Segment-wise Impact

Covid-19 Regulatory Package

Rescheduling of Payments – Term Loans and Working Capital Facilities

Other measures taken to augment system-level and non-bank liquidity

Targeted TLTROs of Rs. 1.0 trillion

The key highlights of the facility are:

1. The duration of the TLROs will be up to three years.

Cut in CRR by 100 bps and increase in MSF by 1%

Priority sector lending – Lending by banks to NBFCs for on-lending

Implementation of Indian Accounting Standards – RBI guidance

Floor on Expected Credit Loss

Computation of Regulatory Capital and Regulatory Ratios

B. Others (G-Secs, NCDs, CPs, pass-through certificates (PTCs), etc)

Refinancing Facilities to NHB

Key Proposals Affecting NBFCs/HFCs

Possible impact on NBFCs/HFCs

Mar-16 Mar-17 Mar-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Exhibit 5: On-balance Sheet Portfolio Growth of Affordable Housing HFCs

Source: Financials/investor presentations of various HFCs, ICRA research

Amounts in Rs. crore

Mar-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Jun-19 Sep-19 Dec-19

LAP Segment Gross NPA% - HFCs

GNPA as of Dec-19 Projections for March 2021

Housing 1.4% 1.8%

Source: Financials/investor presentations of various HFCs, ICRA research

Funding & Liquidity

50% 25% 20% 19% 23% 24%

20% 39% 42% 42%

Source: Financials/investor presentations of various HFCs, ICRA research

Bank Lines 28%

Commercial Paper 12%

Fixed Deposits 16%

0% 5% 10% 15% 20% 25% 30%

Note: Amount in Rs. crore; Source: AIMIN data, ICRA research

50000 Period CY2018 CY2019

Source: AIMIN data; Note: Amount in Rs. crore

Source: AIMIN data; Note: Amount in Rs. crore

Source: Financials/investor presentations of various HFCs, ICRA research

Advances + Investements Borrowings + CL Advances + Investements Borrowings + CL

Source: Structural liquidity statements of ICRA rated HFCs, ICRA research

Capitalisation & Profitability

Quarterly Performance Trend

Housing Credit as proportion of GDP (%)

17% 16% 16% 15% 16.2% 15.4% 15.5%

20% 19% 20% 20% 19% 21% 21% 21% 21%

* The Herfindahl-Hirschman Index (HHI) is used as a measure of market

Source: Investor presentations of various lenders, ICRA research

ICRA Ratings in the Sector

Company Name Previous Rating Rating Post Revision Month of Action

Women Women Others Women Others Women Others

5 External benchmark rate (EBR) = Repo rate +2.65%

Source: Financial statements/investor presentations of various HFCs; Amount in Rs. crore

Category HFCs included

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