Loan Disbursement by Housing Finance Companies Have Slowed Down

Narendra Kumar

27 Jun, 2019

Loan Disbursement by Housing Finance Companies has made housing credit facility more affordable, and the activities of housing finance companies are based on the regulatory framework issued by RBI.

RBI has issued statutory directive by keeping in view the objective of the NHFP (National housing finance policy) issued by the central government by introducing the Housing Finance Allocation, where the banks are playing a vital role in disbursing the loan to provide credit to the housing sector.

What is the Housing Finance Company?

Housing Finance Company are companies regulated under the guidelines issued by the RBI and is another form of NBFC with the principal business of acquisition Finances and construction of the house which includes-

• Direct and indirect financing for apartments
• Developments of plots of lands.
• Construction of New Houses

Functions Performed by The Housing Finance Companies for Loan Disbursement

Housing Finance companies are encouraging the potential buyers to serve credit facility for housing finance by providing-

• Promotional and Development facility
• Regulatory Assistance
• Financial credibility.

Loan Disbursement by Housing Finance Companies Have Slowed Down

Housing finance companies are facing under way challenges in various sectors like SME(Small medium enterprise) and real estate which as a result lead HFC to put pressure on their margins and to reassess plan of loan growth.

The impact of slowing down the loan disbursement by the housing finance company is not only affecting the Real state sector but also-

• Retail home loan borrowers
• The applicant of the fresh loan disbursement
• Property developers
• Underlying projects of Construction sites.

Consequences of Slowing Down of Loan Disbursement by Housing Finance Companies

In the present scenario, the systematic rise in borrowing rate has affected the business of housing loan which as a consequence resulted in the following-

• Large Housing Finance Companies borrowing cost could be upwards of MCLR (Marginal cost of funds-based lending rate) of Banks.
• Banks are highly competitive, which has led in narrowing of margin in housing loans in Medium to large scale sector.
• Housing Finance Company’s reassessing loan growth plans by putting pressure on their margins as the challenges in SME, and real state sectors are high.
• Significant rise in funding cost and asset-liability mismatches.

Relevant Facts about Disbursement of the Loan by Home Finance Company

• Disbursement of the loan in 4 quarters, i.e., September 2018 is averaged 25000 crores per month for 6 HFCs players dealing on a large scale.
• Mitigation of risk by HFCs player by expanding their Non-housing books at a higher rate than pure housing loan books.
• Moderation of housing loan growth in Q3 FINANCIAL YEAR 2019-
• 14% on year to year basis
• 3.5% on quarter to quarter basis.
• Average disbursement of loan fell to 13,500 crores following September 2018 statistics.
• Risk approach of low rated HFCs has increased as per their funding profiles.

Housing finance sector continues a material impact on the construction progress and the risk in the market in terms of borrowing rate has affected the business of housing loan.

The mismatch of asset-liabilities has resulted in restricted financing from both the market-based sources and banks.

Challenges Faced By Housing Finance Companies

Challenges are faced by the Housing Finance Companies which have increased the risk factor in the business of housing loan.

As a result of which HFCs has emphasized on short term funding to reduce the funding cost.

The liquidity crunch in Housing Finance company has varied the duration of lending and funding, which lead to the mismatch of asset -liability thrust.

Dual Impact on Both Builders And Borrowers

The lending and funding approach in the housing finance sectors has cut down the loan disbursement, which led to HFCs and NBFCs to decrease the fresh loan disbursement as well as the running loan relating to construction.

Buyers of Home Loan can face challenges in executing the services to be rendered to the property developers.

The duration of HFC lending is for long period but now the duration of funding is for 3-4 years which has created an asset-liability gap and maintaining this gap through short term funding in less time is the big challenge.

For Instance-The disbursement of PNB Housing Finance’s disbursement come down quarter on quarter due to a loophole in the lease rental discounting agreement.

Conclusion

Housing Finance Company and NBFCs are facing the liquidity crisis from past few years especially in 2018 because of this Credit rating is of utmost importance for NBFCs and Housing Finance Companies and generating the liquidity NBFCs are relying mainly on bank funding, i.e., Term loans and portfolio selling.

RBI is now considering to strict the regulation to strengthen the financial markets, and NHB is by using specified rules in the housing finance companies is trying to improve the liquidity status to refinance the target for the fiscal year 2019.