Worried NHB starts tracking HFCs with exposure to several developers
A key concern that NHB may have is that a large sum of money could be routed to troubled developers.
A key concern that NHB may have is that a large sum of money could be routed to troubled developers. Some of the names that NHB checked about include two Northbased developers, one realtor in Mumbai, and one large developer in Pune.
“It is part of our ongoing process,” said an NHB official, but did not disclose the names of the developers or the HFCs which have exposure to those developers.
“For HFCs to be eligible for refinancing (from NHB), they will have to meet the guidelines set by the regulators,” he added. These guidelines include lending in a way the NHB and the central bank direct.
Confirming the development, the head of a large HFC said: “Over the last few months, NHB has sent a communique seeking exposure to builders they believe are over-leveraged.” In supporting policy initiatives on housing, particularly affordable homes, the government and the regulator have issued licences to HFCs in the recent past. This also includes companies with no major experience in the space. The number of HFCs has doubled to 95 in the past five years.
Analysts say keeping a track on these companies is now a challenge. Despite the focus on affordable housing, HFCs have entered into non-traditional products such as LAP (loan against property), and large loans to developers that carry a comparatively higher risk.
To alleviate the liquidity crunch the sector is facing after a series of defaults by the group companies of IL&FS, the housing finance regulator said it has increased the refinance limit for 2018-19 to Rs 30,000 crore from Rs 24,000 crore earlier. Despite the tough environment, HFC and NBFC funding to real estate has increased at a compounded rate of 45 per cent over the past four years.
In comparison, bank funding to the sector has grown at 4.7 per cent.
The HFC and NBFC market share in developer financing has increased from 24 per cent to 53 per cent during the same period. Commercial paper (CPs), a short-term (less than one year) debt instrument, has been a popular borrowing tool for HFCs.
According to estimates, CPs issued by HFCs worth Rs 2 lakh crore will mature over the next one year and will need to be rolled over. Mutual funds own around 55 per cent of these CPs. Analysts believe that the funds may not be able to sustain this, as they have outsized their permissible exposure to HFCs, likely causing further financial crunch in the sector.