The National Housing Bank (NHB) has slapped a set of stringent rules which may put housing finance companies (HFCs) under stress.
It has raised the provisioning requirement for doubtful assets up to 100% while it has directed HFCs, for the first time, to set aside 0.4% of the total outstanding "standard" loans as a buffer.
The new guidelines are aimed at protecting the health of HFCs when concerns over possible asset quality deterioration increases manifold amid rising interest rates, but industry captains said their profitability will come under severe strain this year.
"We were getting uncomfortable seeing the upward interest rate movement and rising property prices," NHB chairman and managing director RV Verma told ET. "Given such a scenario, the likelihood of delinquency rising can't be ruled out. So we thought it would be prudent to impose stricter provisioning norms to give a signal to our members," he said.
NHB regulates 55 HFCs with a 35% share of the 5.3 lakh crore housing loan market.
Market leader Housing Finance Development Corporation (HDFC) said it will not be impacted by the new set of norms. "Historically, we keep excess provisions so there will be no impact on our profitability," HDFC vice chairman & CEO Keki Mistry told ET. HDFC has provided 1,173 crore for the June quarter against the requirement of 840 crore.
But Mistry said in general, the new norms will put pressure on profitability as the lenders have to provide more. "But I assume most lenders have taken adequate guards in anticipation," he said.
The regulator has doubled the provisioning requirement for doubtful assets which are lying for three years and above to 100% from 50% earlier. It has raised the ratio to 15% for sub-standard assets from 10%.
HFCs will also have to start making a provision of 0.4% of the outstanding retail housing loans, which are classified as standard assets. Earlier, HFCs used to provide 0.4% only for "standard" non-housing loans. The norms are in line with RBI's direction to banks for their housing loan exposure.
For existing teaser loans, lenders will have to continue to make a provision of 2% for another year even if they discontinued the scheme. The new rules will come into effect immediately.
"We will request NHB to implement this set of norms in a phased manner so that we get sufficient time to absorb the impact," said R Nambirajan, head of DHFL Vysya Housing Finance, which operates in south India.
GIC Housing Finance managing director M Sivaraman said: "These are drastic changes and will discourage us to lend freely. This will impact our profitability and may put pressure on lending rates as lenders will like to protect their margin."
Another industry leader said HFCs' provision coverage requirement is expected to rise by 20-30%. He said companies that don't make floating provisions will suffer the most.
The NHB chief observed that HFCs normally maintain floating provisions. "This is why we don't expect the new guidelines to destabilise HFCs' balancesheet," Verma added.
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