NBFCs liquidity crunch to hit home loan sales

The ongoing liquidity squeeze will slow down non-banks home loan disbursements, a report has said.

Home prices, which have witnessed a relative slowdown in growth, will continue to be under pressure, Japanese brokerage Nomura has said.

“Housing loan disbursement by shadow banking companies is set to slow down due to the ongoing liquidity squeeze,” it said.

Banks can “cannibalise” a part of this, leading to an uptick in their market shares, it said, but adding this will come at a higher cost for borrowers.

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It said real estate developers, which are already under pressure due to rising inventories, will also face troubles owing to non banks’ inability to lend.

It can be noted that non bank lenders are facing a liquidity squeeze due to potential asset liability mismatches in a rising interest rate environment.

Critics blame them for relying excessively on short term liabilities while making the long term loan bets, which, in a rising interest scenario has come to haunt such players.

Pointing to a recently released RBI report stating that house prices growth at an all India level moderated to 5.3 per cent in Q2 compared to 6.7 per cent in the preceding quarter, it said price hikes are also slowing down.

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It said the house prices grew at an average of 18 per cent per annum between 2010 and 2015 fiscals which came down to 7.5 per cent in FY17.

The RBI report said prices have been particularly tepid in the metros and Delhi even recorded a marginal negative growth of 0.1 per cent in the second quarter.

Nomura attributes this to high real interest rates, lower inflation, affordability concerns and policy efforts to increase transparency.

It can be noted that last few months have seen developments like the introduction of housing regulators and also the drive against black money which has curtailed realty play by investors.

“We expect this to continue, despite bank retail lending still being a tailwind,” Nomura said for its outlook on the sector.