For Housing Finance Companies GNPAs Rose 70 Bps On Tighter Norms: CRISIL

Gross non-performing assets (GNPAs) of housing finance companies (HFCs) rose to 3.3% as on December 31, 2021, from 3.0% as on September 30, 2021, attributable to Reserve Bank of India's (RBI) November 12, 2021, clarification1 on recognition and calculation of NPAs, rather than any real mark-down in asset quality.

"But for this, GNPAs would have been 2.6% in December meaning, the new way of calculating had a 70 basis points (bps) impact, a CRISIL Ratings study of 35 HFCs comprising 95% of the industry's assets under management, indicates. This is in line with our earlier estimates," CRISIL has stated in a release.

Put another way, without the change in rule, the portfolio quality of HFCs on-quarter - and on a like-to-like basis - would have shown an improvement of 40 bps.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings Ltd, "Affordable housing finance companies2 have seen a higher 140 bps impact on average due to the revised recognition norms. Their borrowers tend to have limited financial flexibility and volatile cash flows. Therefore, their bounce rates are higher typically. Also, most can't repay their entire arears in one go, which could lead to stickier GNPAs in the segment."

On their part, HFCs are trying to change borrower behaviour and reduce additional slippages into GNPAs. This, however, will lead to increased operational intensity as they beef up their collection efforts.

Says Subha Sri Narayanan, Director, CRISIL Ratings Limited "As many HFCs have already switched to the revised norms as per the November 2021 clarification, they are unlikely to revert to the previous regime, a flexibility now available as per the February 15 clarification. This is because the increase in reported GNPAs for many HFCs is not very significant and is more of an accounting, rather than an economic, impact. The required provisioning levels, too, have not been materially affected, as HFCs generally follow Indian Accounting Standards (IND-AS), where provisioning levels are typically higher compared with the IRACP requirements. Assuming they do not avail of this dispensation, overall GNPAs for the sector are expected to settle at ~3.0% by March 2022."