Ratings agency Crisil in its latest report has said that the National Housing Bank's (NHB) new norms for housing finance companies (HFCs) will structurally strengthen the sector and increase investor confidence at a time of liquidity stress among non-banks. It found 25 HFCs accounting for 90 percent of the industry's assets are already complying with the norms by having their core tier-I capital at 4 percentage points higher. It added that stronger balance sheets and increased capital levels will make HFCs better placed to absorb asset-side risks in future.
In the revised guidelines, the NHB has asked HFCs to increase the core capital adequacy to 10 percent from 6 percent and asked them to increase the overall capital adequacy (CAR) to 15 percent from 12 percent earlier. The report noted that the maximum leverage that HFCs can take up has been reduced to 12 times from 16 times over a period of three years and the ceiling on the deposits that HFCs can mobilise has been lowered to three times of net owned funds from five times.
Ratings agency has stated that the NHB’s revised guidelines are not expected to constrain too many players as the mortgage growth expectations are lower. It pointed out that HFCs have grown at an average of 20 percent over the past three years, despite the slowdown in growth in second half of fiscal 2019. It noted that even if this growth were to be maintained over the next couple of years, existing net worth and internal accruals should be adequate for the vast majority of players.